Naga is located near the Prisons area

The Naga is found under the prison, close to the Mino lair.
First you need to find a Statue. Figurines can be found on Tehruh -1 and Prisons.
Then move to the bottom level of the prison and take the NW stairs.
Moving SW in the water you will notice a small cave.
Follow the water way till you can go no farther.
Holding the statue you can now enter the lair of the Naga.

Naga will Stun, Cast Darkness, Bite and Poison you. Upon tanning her you get a set of armor (not sure what she is good for other than that though). The armor sucks!!!