Concept:
Water erosion occurs in different forms such as sheet erosion, rill erosion, gully erosion and stream bank erosion.
Step 1: Sheet erosion removes a thin layer of soil uniformly from the surface.
Step 2: Stream bank erosion occurs along river or stream banks.
Step 3: When running water cuts the soil deeply and forms channels, the erosion is called gully erosion.
Step 4: Gullies are larger and deeper than small rills.
Step 5: Therefore, the correct answer is:
\[
\boxed{\text{Gully erosion}}
\]