Weird water leak on 7.5 hp

1976, 7.5hp Mercury Engine, starts great, runs fine and smooth, but there's water coming from around the top spark plug (see attached picture for location)!

If I pull the plug wire, motor runs rougher so it seems the cylinder is firing. Is there a water jacket around the cylinder that could be leaking yet not affecting things? Water appears to be coming from around spark plug yet it is nice and tight. Water pump works great and a good solid stream of water through pee hole.

Wouldn't be surprised if this has been happening for a while as I saw accumulated water in base of engine casing last year but basically figured it was a bad connection on water hose through cowling. Pulled the plug yesterday and it's a little darker than lower one but that's about it.

This is the kicker for my 20' sailboat so if it runs, I'm good (which it seems to be) but I'd really appreciate you knowledgeable folks' advice.

Replace the gasket on the water jacket cover ----------Simple job ( on a fresh water motor ) can be tough with breaking bolts on saltwater motors.

Thanks! Sadly it's a salt water motor. Any DIY hints on dealing with those six bolts if they're seized?

Drill the nut from the side to split it / get rid of it.-------Good luck.