Talk to Commander Lothar to learn of the corpses returning to 'life'.
Head east out of the Army Camp and along the paved road that leads into the Thylysium suburb. Where the paved road turns northeast down the hill, continue east along the faint dirt track (you should remain south of the fence). Follow the track when it turns south into a narrow passage between steep hills.
Unless riding a mount with the Leap ability, or playing a character with a similar ability (e.g. the High Elf’s skill Shadow Step), follow the track southeast past the first junction and then turn west at the next junction (see the shortcut on the map below if you have Leap etc.). Head north when you reach the paved road, and continue north past the ominously smoking dungeon entrance. Follow the paved road west along the top of the old docks, killing Water-logged Corpses as you go. You will likely encounter a couple of Large Water-logged Bodies as well.
Once you have killed ten of them, return to Commander Lothar for your reward.
You can now talk to him again for the last quest in the chain, The Lich.