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The Naga is found under the prison, close to the Mino lair. First you need to find a Statue. Then move to the bottom level of the prison. 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. She will cast darkness 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!!!