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If you have the Set Traps skill, an easy way to take out Klauth is to line his lair with traps. He starts out non-hostile, so you can set traps to your hearts content. Then back away, attack with an arrow, and watch him run over all your traps.
If you don't have this skill, you'll have to fight it out. He attacks with fire and slashing damage, so resistance to these will help. He is very hard to hit, so make sure you have combat buffs up. Use any magical items, using the rogue skill, that may help you in this fight. Hopefully, you have Boots of Haste or another Haste item.
You may try taking Linu as your henchman. She will often cast Harm, which drains an enemy of all but 1-4 hps. This will make your fight against Klauth very easy. However, there's no guarantee that she'll cast it, or that it will work.
I, too, consider using the Stone of Recall in the middle of a fight a borderline cheat tactic. Try all other options.
It wouldn't hurt to level up. Ideally, you should be around level 16, but that's hard to achieve with the current xp set up. Make sure you do everything else in the chapter 3 before you do this fight.
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