What I expected to happen:

Clean terrain generation.

What really happened:

I was playing my on vanilla server and I say some cliffs. They went up and then I flew around it and it looked like a knife had cut though it and the terrain generated like there was no mountain.

How to reproduce this error:

Generate a world and fly around in it until you find this problem.

NOTE: This world is not a old 1.6.4 world. It was generated after I updated to 1.7. Also note that this happened on a multiplayer server that is not hosted on my computer.