Water Lock should release if you turn the Digital Crown, at least 2 full rotations. If that doesn't work try a Forced Reset by pressing and holding the Digital Crown and Side Button (together, at least 10 seconds) until the Apple logo appears, then release the buttons and let the watch reboot. (My test shows Water Lock will be unlocked during the forced reset, but you have to ignore the water lock mesage which appears when you first press the buttons, just keep pressing and wait for the Apple logo)
If you don't get any response from the attempts above you might have a hardware problem. Contact Support to arrange hands-on support from Apple.