Two people have suggested you build a cabinet around the original cabinet. I also think that is the simplest, least expensive fix. If you don't have much space the studs can be split 2x4s with a plywood exterior. You don't need to finish the cabinet interior, but if the water heater is gas-fired you should use a louvered door for ventilation.

While you have everything exposed make sure all pipe inlets and outlets are sealed against bugs and other vermin.

You not only need to build for concealment, you need to build for access. I just put butcher block countertops in a mobile home. When her water tank goes, someone's going to unzip the exterior siding to replace it.

ASBO has the right idea.

Dont know about the US ..but here in the UK my central heating/hot water boiler fits in a standard kitchen cabinet