If it's the same as the larger ones there is a large cast aluminium fuel resevoir on the left (port) side of the engine, the bit underneath with a pipe on it should be the bleed for the resevoir and the water will be at the bottom - if in any doubt at all consult the manual or a trained engineer!
the water sensor is fitted (screwed) into the bottom of the engine fuel filter. This looks like a smaller version of a car oil filter and is obvious when you lift the cowl.
The sensor will alarm if it becomes disconnected (fail safe i guess) so check that first (experience) otherwise drain or change (prefer to change) this filter.
They are expensive (£30 odd) but its worth having a spare on board if you do long trips like i used to.
Oh, if you do buy a spare wrap it well or they go rusty and you throw away £30 of rusty filter (also experience)
Just be careful to get all the water out and find out how it got in there, the injectors on to Optimax are very susceptible to water and they are a arm and a leg to replace
If your getting water up that far you really should invest in a Transom mounted (external) water seperator. Not very expensive you can get them from your local Mercury/Mariner dealer. That way the water will get trapped in it before it gets to your engine. And you can see whats in the filter as they have a clear bowl on the bottom so you can drain it out when ever you need to.
