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It appears that StreamReader's readlines method behaves in a strange manner if the StreamReader has, in a previous read operation, decoded more characters than the user asked for; this happens when both the chars and size parameters are used, but only in some circumstances.
See the following:
Python 2.7.2 (default, Jun 26 2011, 02:56:25) 
[GCC 4.0.1 (Apple Inc. build 5490)] on darwin
Type "help", "copyright", "credits" or "license" for more information.
>>> import codecs
>>> 
>>> ## First make a file
... with codecs.open('temp.tmp','wb', encoding='utf8') as f:
... f.write(u'This\u00ab is a test line\nThis is another test line\n')
... 
>>> 
>>> ## Now open it for reading 
... UTF8Reader = codecs.getreader('utf-8')
>>> with UTF8Reader(codecs.open('temp.tmp','rb')) as f:
... print(repr(f.read(size=5, chars=5)))
... print(f.readlines())
... 
u'This\xab'
[u' is ']
# The expected output is 
# u'This\xab'
# [u' is a test line\n', u'This is another test line\n']
I believe the culprit is codecs.py, line 466-467 (the two starred lines below). I think they ought to be replaced with 'pass'.
 if chars < 0:
 if size < 0:
* if self.charbuffer:
* break 
 elif len(self.charbuffer) >= size:
 break
Best wishes,
Thomas
PS - I will apologize in advance for any oversights or mistakes in the formatting etc. of this bug report---this is my first time!

See also #8260.

Yes, this is obviously a duplicate of issue8260.