  We present MERLIN observations of Galactic 21-cm HI absorption at an angular
resolution of c. 0.1-0.2 arcsec and a velocity resolution of 0.5 km/s, in the
direction of three moderately low latitude (-8< b <-12 deg) extragalactic radio
sources, 3C111, 3C123 and 3C161, all of which are heavily reddened. HI
absorption is observed against resolved background emission sources up to c. 2
arcsec in extent and we distinguish details of the opacity distribution within
1-1.5 arcsec regions towards 3C~123 and 3C~161. This study is the second MERLIN
investigation of small scale structure in interstellar HI (earlier work probed
Galactic HI in the directions of the compact sources 3C138 and 3C147). The
0.1-arcsec scale is intermediate between HI absorption studies made with other
fixed element interferometers with resolution of 1 to 10 arcsec and VLBI
studies with resolutions of 10-20 milli-arcsec. At a scale of 1 arcsec (about
500 AU), prominent changes in Galactic HI opacity in excess of 1-1.5 are
determined in the direction of 3C161 with a signal-to-noise ratio of at least
10 sigma. Possible fluctuations in the HI opacity at the level of about 1 are
detected at the 2.5-3 sigma level in the direction of 3C123.
