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It is well known that WLAN based on the IEEE 802.11 standard suffers from interference and scalability problems due to the limited number of non-overlapping channels. In order to mitigate the interference problem, channel assignment algorithms have been a popular research topic in recent years. It has been shown that such algorithms can greatly reduce the interference among wireless access points. However, in this paper we present our findings that traditional channel assignment algorithm can introduce a high hidden node index in high network density, thus greatly reducing the WLAN performance. We show that careful consideration needs to be taken when assigning channels using such algorithms. In addition, we propose a novel algorithm, called Cluster Channel Assignment (CCA), which is presented in the form of a state diagram. From our simulation results, we show that CCA can outperform traditional channel assignment in densely deployed scenarios, and is therefore a better alternative in such settings.