To get to the water demon , you have to go to Valmonts warehouse after you get the pufferfish for Uncle.there the cutscene starts and then the warehouse will be with water.the demon will cum & attack if u r in the water.go up the staircase and stay a bit far from the railing to dodge its attks.If u want to attk it , there will be ice cubes.throw 1 and it will freeze kick it 2 or 3 times. Repeat the process till Uncle comes.