Seismic response of levees is typically computed for short segments within which levee geometry, soil conditions, and seismic demands can be assumed to be essentially constant. However, from a flood protection perspective, the performance of the system as a whole is critical because any failure within the system can lead to inundation. An assessment of system risk requires knowledge of individual segment performance in combination with the spatial correlation of damage among segments. We present a correlation model for damage states among levee segments that can be used in combination with segment fragility models and correlated demand functions to assess levee system risk. We compute the autocorrelation of damage states as a function of separation distance for the Shinano River levee system in Japan, based on observational data from two shallow crustal earthquakes. Levee segment damage is found to be spatially correlated up to 4 km separation for small to moderate levels of damage but only to 1 km for severe damage.