If you look in the yourmission.mis file, you'll see something that looks similar to this.
new TerrainBlock(Terrain) {
rotation = "1 0 0 0";
scale = "1 1 1";
terrainFile = "./kitchen.ter";
bumpTexture = "~/data/terrains/greenhills/sand1";
squareSize = "16";
bumpScale = "5";
bumpOffset = "0.0051";
zeroBumpScale = "5";
};
This is your problem:
squareSize = "16";
Change the 16 to 8.
The water in your map will work fine now, but your terrain will be all wrong, you'll have to re-make your terrain.