After about an hour of running, I find the engine starts to lose its power at say 3500RPM, and what I have to do is lower it to 2000RPM, if I try to increase the RPM back to 3000-3500RPM it starts to depower try to catch back at the required RPM then it loses power again. Once the engine is cooled and started back after say 30 mins, it works fine, until an hour in it does it again. I tested this scenario in neutral and the problem goes away totally. Please help, very frustrating. Engine is a v8 351 Ford Inboard High Output.
Edit from comment:
It is salt water cooled with a pump that draws water from the hull through the risers etc. It is not getting hot as the temp sensors are all connected and working. Oil pressure drops to about 20 PSI from 40 PSI cold start as it heats up to operating temperature. I am also in a tropical climate FYI. I have a feeling it may be transmission related as when it occurs, I shift into neutral and I send the RPMs up to 4000, it is only when it is in gear it starts to surge after about 1 hour of use.