OP, have you played Ecco on the Dreamcast? Some of the levels are super creepy and have cool monsters. Incredible game.
Literally mentioned in the OP. Some crazy stuff
Inside has some really great underwater segments.
I've thought about making an underwater JRPG for a while now which would definitely have some horror aspects. Only underwater JRPG I know of is Heroine Anthem which isn't very well known since it's Taiwanese & I don't think the first couple games were ever localized (Heroine Anthem Zero games on Steam are VERY different than how the series started out).
Oh yes! The crazy mermaid or whatever bashing itself is nightmare fuel.
We really need a good submarine horror game where you explore something strange way down in the ocean's depths, a la The Abyss and Leviathan.
Yeah. I really think a great old one or something hiding deep in the ocean can be made in a terrifying way.
I love this video (it's Blizzard I know. Screw them) especially when Azshara starts to panic. An underwater horror game with the water being as much a character is a dream of mine. I think any person can easily understand how scary it is to suffocate which only makes it a more effective tool to use.