How to fixed water damage raised section of wall
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You have drywall damage. Here's a link that describes how to diagnose and repair it:
https://www.do-it-yourself-help.com/repair-drywall-water-damage.html
Looks like plaster walls. take a utility knife and a paint scraper, cut along side of the blister and scrape out a v-groove in the plaster. Purchase plaster of Paris. This will set-up quickly, mix a small amount in a plastic cup and apply it into the groove with a putty knife, clean off excess with a sponge. Make sure you wet the groove before plastering.
For small area of drywall damage, you can make repairs using a patch. Carefully cut out the damaged area, making sure that both side cuts are centered over a stud. If necessary, make the hole larger to accomplish this. Toenail a horizontal 2×4 between the studs at the top of the hole, centered between the existing drywall and the newly cut opening. If the opening spans more than one stud, you will need to use multiple pieces of 2×4 as well. These pieces are used to keep the old and new drywall flush and to give you an easy way of fastening the patch in place.
Place the replacement piece in the opening and insert drywall screws every 8 inches around the opening. Using a putty knife, apply drywall compound around the edges and allow them to dry. Dampen a stiff sponge and carefully wipe the excess drywall compound off. For best results, repaint the entire room.
Are the walls plaster or drywall? How old is the house?
Replace the sheetrock