Q The other day, I was playing in a tournament where preferred lies were in effect because of heavy overnight rains. We were allowed to move the ball one club length if the ball was in a closely mown area through the green of our own hole. I saw another player lift his ball from an area of casual water, find his nearest point of relief which was approximately 10 yards away, and place his ball within one club length of that spot. I asked him if he should have dropped it first, and he insisted that since preferred lies were in effect, he didn't need to do that. Was he correct?
A Because the player was taking relief from an abnormal ground condition, Rule 25-1 required him to drop the ball first within one club length of his nearest point of relief. Once that was done, if his ball was still in an area where he could improve his lie (as you mentioned), he could then mark, lift, and place his ball within one club length of the new spot. He needed to establish his new position on the ground with a drop first before applying the preferred lies local rule.
If he played the ball which he placed instead of dropping it without correcting his mistake as Rule 20-6 Lifting Ball Incorrectly Substituted, Dropped, or Placed allows, Decision 20-6/1 says that the player would either lose the hole in match play or incur a penalty of two strokes in stroke play for a breach of the applicable Rule. In this case, that Rule is 25-1.
On a side note, the player could also have chosen to mark, lift, and place his ball within one club length as permitted by the preferred lies local rule without leaving the casual water, unless it was an area where relief was required.