When I first began working on Cadence Of Agony, I ran into similar problems.
The best way to tackle The Sunken City is to leave the boss as The Bone Dragon King but change the Sprite to something else.
What is happening after you defeat death is the game tries to launch the rising water stage after like normal.
If you change the bone dragon to anything else, the game still tries to go to the rising water stage but because the bone dragon king has been changed, the game no longer thinks you are completing the Sunken City Stage. In a way the coding for Death's Defeat and The Bone Dragon King's Defeat get mixed up. This causes the game to try to load the next stage in hex value which is Stage 1. But not Stage 1 from the beginning of the game but the Unused launch of Stage 1 that the game sends the player too if the rising water stage is inaccessible by Hex Value.
This is why you get to see the Unused Map Screen for Stage 1 never used in the original release.
I'm surprised no one has done a unused content video including that map, I assume it's still not common for anyone to come across it.
To my knowledge there is no way to remove the water rising stage after The Sunken City without some advanced programming knowledge. You would have to fill in the gaps of code that could prevent the game from going to the next available value. A good comparison would be the glitch done in Super Smash Bros. Melee to play as the Master Hand. The game simply goes to the next Value because it doesn't know what else to do.
I don't know myself how to fix the problem causing other bosses to work on the stage.
But I hope this helps anyone who is curious as to why it is happening.
I'm sure someone will figure out a way eventually.
Best Of Luck!