I believe it dates to the original Peripheral handbook, but there is an in-universe myth that at some point Canopus genetically created a mermaid
Are you thinking of one of the world's from Interstellar Players 3 Interstellar Expeditions?
I think that is the book where there is a world where the Star League was doing genetic experiments for colonizing water worlds.
I could be worng, it has been a long time since I read the old Periphery book.