The effect of tip clearance and rotation on the flow field in an annular turbine passage is studied numerically. Three-dimensional Navier-Stokes equations are solved with respect to the rotating frame of reference. The results indicate that the leakage flow through the tip gap induces a leakage vortex along the suction side of the blade. The leakage vortex interacts with the passage vortex and suppresses its development. Another vortex, referred as a tip vortex, at the edge between the tip and the pressure side of the blade is observed. With a larger gap, the strengthened leakage vortex pushes the passage vortex away from the suction side of the blade. With rotation, the leakage and passage vortex are pushed toward the suction side of the blade.