There are some diesel additives that get rid of water. You are probably not talking about much fuel here. Can you drain all the fuel and put it in a bucket?
The water will settle to the bottom and just drain back off the top back into the heater. IF it is cold enough were you live that water, fuel in a bucket the water would freze solid and then you could easly seperate it.
By the way I heat my shop with 2 of those torpedo heaters and I burn diesel fuel in them. Diesel here is $2.35 and kerosene is $3.79