This is Yarenova sekera. Vaska, the village eldress tells to Geralt that there is no need to kill the Vodní páni, as she calls them. They simply require a token of good faith from the woodcutters. This token, she says, should be the lead woodcutter's sekera.
The witcher must first convince Yaren to give up the weapon, then place the axe in oltář rybolidí near the hliniště and wait until midnight for his "answer" from the creatures.