Motors intended for buggys are usually rated by their turn count. How few turns is this one? "Normal" is 24 or more. "Sport" is lower. Low turn count motors spin very fast at the cost of much reduced torque and much higher current. Overloading them puts them into a virtual stall condition, pulling a lot more current for very little extra output power, and causing them to produce heat rather than turning force.
The normal rules of can type motors is "not less poles than prop blades, prop should not be of greater diameter than the motor can". With very high revving low turn motors, too much prop will push the motor into permanent semi stall mode and cause it to pull a lot more current than it would if it was correctly loaded. A 2 blade 35mm prop was suggested earlier. That is definately the best place to start, probably going to smaller props if more speed in wanted - its the distance that the water is pushed per second, not the volume, that counts.
At very high currents, the chemical reaction going on inside the battery becomes less efficient at turning stored energy into electric energy. The "lost" energy becomes heat, hence the warm battery in that kind of use.
It sounds like the fuse is doing an excellent job of protecting everything.