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Your answer to keep or scrap is really dependent on your desires. What you are facing with the engine is a daunting task. That is a wet sleeve lined gasoline engine. When the liner seals fail they fill the cylinders and crankcase with coolant. Sometimes damaging the crankshaft and connecting rods along the way.

The major downside to repair is the condition of the block. If it is rusted at the cylinder seal surfaces it will not be salvageable. John Deere was still selling both complete engines and short blocks the last time I checked.

If you restore or replace the engine, they take diligent attention to proper coolant maintenance and head bolt torque or you will be repeating the failure.

The bottom line, in my opinion, is that particular tractor was not that durable because of the engine. The coolant of the era was prone to corrosion of the engine, and owner failure to properly maintain them led to failure. However, given the price of a new tractor in the 60 engine horse range, it may well be in your interest to repair.

Spend some time pricing what you need at your local John Deere dealer's parts department before you jump either way.
 

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The cylinder liner and piston kits will clearly state whether gasoline or diesel. I recommend taking your tractor serial number and starting with your John Deere dealer for engine parts. Once you know the correct part numbers you can search the net for less expensive alternatives. Beware of Ebay Chinese alternatives!

But before you buy the internal components be absolutely certain the block has not been subjected to freezing weather with water inside, and pull the old cylinder liners (pistons, rods, etc.) and verify the cylinder liner sealing surfaces are not corroded to the point they will no longer seal. I hot tank then magnaflux these old bare blocks before rebuilding.

Do not attempt to use old pistons and wrist pins in the new cylinder liners. Get the full kit and a set of wrist pins and bushings.

Pull the crankshaft and have it inspected for trueness and bearing surface condition. Inspect the connecting rods. If the tractor was attempted to be started with water in the cylinders it bends both the crankshaft and the connecting rods when the pistons hit non-compressible water.

Pull the camshaft and inspect those bearing surfaces and the cam lobes for rust. The surfaces must be mirror smooth, within tolerances, and with no rust tracks. If you have the crankshaft turned to resize the bearing journals discuss it with your JD service manager first. There are mirror finish and blanchard ground options, you want to be sure you have the correct bearing inserts and a good oil pump for either.

Also pull the engine balancer shafts and inspect them for rust damage on the bearing surfaces. Most engines that have water in the oil will have these shafts damaged, and you do not want to rebuild then have one of the balancers fail and ruin the block.

The gasoline and diesel 219.4 cubic inch block castings are the same.

These engines are not one that I recommend seeking replacements from a tractor salvage yard. Most of those have cylinder liner to block leaks, and you will be where you are after the process.

It is absolutely critical you follow the recommended engine head bolt re-torquing procedure once the engine has been reassembled and worked. 99% of the owners did not do that, and the liner seals subsequently fail.
 
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