Thermal analysis of a horizontally mounted underwater enclosure with annular fins has been carried out using Flotherm XT software with finite volume method and cartesian grid discretization, to arrive at an optimum internal heat sink and external fin configuration. The effects of an additional internal heat sink, fin spacing ratio S/d and fin to shell outer diameter ratio D/d on the heat transfer rate from the enclosure with a total heat generation of ~500W, are presented. The use of an internal Copper heat sink reduces the maximum temperatures on the PCBs by 6.85 °C. An optimum fin spacing ratio S/d of 0.025 for a fixed D/d ratio of 1.25 is observed at which the heat transfer rate is maximum, with slight decrease in the optimum S/d for lower values of D/d. The velocity field for the various fin spacings indicate that the natural convective currents are influenced by the fin spacing. The optimum configuration is numerically studied to ensure the service reliability in long term underwater operation and short-term ambient tests. A useful Nusselt number correlation applicable for D/d in the range of 1.1–1.3 is developed as the function of S/d and D/d and compared with the existing correlations.