In a steamer or a stock pot, steam the pipis in 1/2 cup of water for 5 minutes or until opened. Remove pipis from pot and reserve liquid for the soup. Remove the pipi meat from shells and chop roughly. Discard shells and set pipi meat aside.
In a stock pot, saute the onion in butter on a low heat for 5 minutes or until translucent. Add the garlic and fry for 1 minute. Add the parsley and continue to fry for another minute. Turn up the heat and add the sherry. Let the alcohol evaporate (this will take about 1 minute). Then add the clam liquid and salt. Stir again and simmer for 3 minutes. Add the milk and diced potatoes. Simmer for 10 minutes. Now add the flour/water mixture and stir well to thicken.
After about 5 minutes, or just before serving, add the chopped pipis to the soup. Add the chopped basil and stir well. Taste the soup and add more salt if it's needed. Serve soup with a piece of garlic buttered toast.
A pipi is a New Zealand shellfish. You can substitute any other type of clam.