Which is more natural to
the native speakers? Are they both grammatically correct?
1. I am scared of water.
2. I scare of water.
Please note my corrections above.
If you are frightened/afraid, you need to use the adjective "scared". If you are making someone else frightened/afraid, you can use the verb "to scare". That's what you've done in sentence 2 but you have incorrectly followed it with a preposition and with something that cannot be frightened or afraid.
I am scared of water. (You are frightened/afraid of water.)
Water scares me. (Water makes you frightened/afraid.)
Paul is scared of me. (Paul is frightened/afraid of you.)
I scare Paul. (You make Paul frightened/afraid.)