The Water Horse by Dick King-Smith, illustrated by David Parkins

From the back of the book:
No one could have imagined the outcome of the children's expedition to the beach that morning. Kirstie is sure the strange, washed-up 'egg' will hatch, but even she is unprepared for the appearance of baby Crusoe. The tiny sea creature, who, next to food, likes nothing better than a good tickle along his back, is quite unlike anything Kirstie and Angus have ever seen before. But like all babies, Crusoe doesn't stay tiny for long and with his increasing size comes an increasing problem for the whole family. He will soon outgrow the fishpond, but where else can they take him? And how can they teach the bewildered water horse to be less trusting of humans, not all of whom will be so caring for his safety?