Why is my pond/stream always full of thick pond weed/algae?

We have a spring with a fairly small flow, a gallon or so every few minutes, which runs into a small stream. I've have made a pond by damming this to make an area about eight feet by four or five. As the water is very clean and pure (we drink it as our household supply) I thought it would be ideal for a decorative pond with water lilies and so on.
However, as soon as summer arrives, the pond fills up with thick choking pond weed and algae. Even pulling it out on a weekly basis it seems to grow back as quickly as we do this.
Water lilies survive but never thrive as they can't compete.
There is a through-put as the water flows out at the bottom end.
Watercress grows very successfully in the stream bed.
The one thing I have noticed is that the water leaves a red deposit on stones and the banks, which I guess is iron. The water here is very hard as we are in a limestone area.
Is there anything I can do about this, or would I be better off simply creating a stagnant pond instead (which I can fill with stream water)?
We've had the water tested and nitrate levels are supposed to be well below any danger limits.

Excess algae is often caused by too many nutrients in the water, is it possible to put a load of barley straw across the input end, we get our barly straw from the pets corner in the local cheapie shop, if you could stuff it into a net bag & lay it across the in end so that the water filters through it, after about six weeks the straw begins to break down & releases a natural substance that breaks down algae...

The other thing is to provide some shade to stop the sun getting to it, but water lillies do this when they grow so hopefully, reducing the amount of algae with the straw will allow the lillies to flourish...

Even after all this nature still needs an occasional hand & standing twizzling a bamboo cane in a pond to take out algae blooms can be very relaxing....

I do that with mine, Spar, works a treat I shove the straw in an old stocking... recylcing..

I can see that this solution (barley straw) works in ponds as there is an interaction between the water and the straw. Some people say it produces peroxide (Iowa State University included), others that it merely attracts algae and filters it out of the water.
I guess in a stream with a constant throughput of water I'd need to replace the barley straw fairly often, but it's worth giving it a go by putting a barley straw 'filter' over the input.
Ah well, it will soon be summer and I can give it a try!

The red might be algae also.

BertieFox wrote:I can see that this solution (barley straw) works in ponds as there is an interaction between the water and the straw. Some people say it produces peroxide (Iowa State University included), others that it merely attracts algae and filters it out of the water.
I guess in a stream with a constant throughput of water I'd need to replace the barley straw fairly often, but it's worth giving it a go by putting a barley straw 'filter' over the input.
Ah well, it will soon be summer and I can give it a try!

Even if it reduces it to a managable level to allow other things to take over, I must admit I have only used it in pond settings, but it is what I would try & it won't cause harm, infact the barley straw does create a small habitat of its own...

The water lily doesn't like flowing water so that may be a reason it hasn't grown strongly. Can you tuck it into a becalmed area? (Also coypu love the roots)