From a balance standpoint I'm OK with whatever limitations you feel are necessary.
As a matter of rules interpretation, I would argue that the text of FoP specifies that sections of floor can be not only possessed but animated as per Animate Object. Animate Object specifies that the target is imbued with
mobility and a semblance of life as well as specifying
stats, which include reach, grapple #'s, etc. So it seems to me that a floor section should be able to move independently of the rest of the floor, just as an animated statue can move from its pedastal. But even if it is rooted due to being part of a larger object, it should be able to deform enough to attack and grapple. After all, a free-standing colossal cube with Animate Object cast on it would be able to fight normally. But the cube wouldn't fly through the air. It would move at 10'/round as the stats block lists for colossal animated objects without legs or wheels.
If your ruling stands, Kaelvorr will animate the water closest to the kobold, move 10' towards him and use reach to grapple. If that's problematic, K. will possess the floor just long to get an updated view of the area and position itself, then revert to ethereal and attempt to possess the kobold (note if possession is successful it takes another action to attempt to gain physical control).