Semiempirical self-consistent field (SCF) methods based on the neglect of diatomic differential overlap (NDDO) formalism have the ability to treat the formation and breaking of chemical bonds but have been found to poorly describe hydrogen bonding and weak electrostatic complexes. In contrast, most empirical potentials are not able to describe bond breaking and formation but have the ability to add missing elements of hydrogen bonding by using classical electrostatic interactions. We present a new method which combines aspects of both NDDO-based SCF techniques and classical descriptions of polarization to describe the diffuse nature of the electronic wavefunction in a self-consistent manner. We develop the "self-consistent polarization neglect of diatomic differential overlap" (SCP-NDDO) theory with the additional description of molecular dispersion developed as a second-order perturbation theory expression. The current study seeks to model water-water interactions as a test case. To this end, we have parametrized the method to accurate ab initio complete basis set limit estimates of small water cluster binding energies of Xantheas and co-workers [J. Chem. Phys. 116, 1493 (2002); 120, 823 (2004)]. Overall agreement with the ab initio binding energies (n=2-6, and 8) is achieved with a rms error of 0.19 kcal/mol. We achieve noticeable improvements in the structure, vibrational frequencies, and energetic predictions of water clusters (n< or =21) relative to standard NDDO-based methods.