If you explore further down that area, you will encounter a Dragon Dungeon map with a blue dragon in it. He isn't initially hostile, but either dialog options or just attacking him will turn him hostile and you can kill him. Once he is dead, put the Dragon Sphere from the fountain into the pedastal to get a Dead Dragon Sphere. When you go back to Klauth, you can offer him the Dead Dragon Sphere and it will weaken him significantly. He is much easier to take down that way. But, be warned that the Dead Dragon Sphere isn't a straightforward win button; he can still be a tough customer.