The role of virtual environments (VEs) is crucial in efficient design and operation of unmanned vehicles. VEs are extensively used in operator training for tele-operation, planning using programming by demonstration, and hardware and software designs. VE for unmanned sea surface vehicles (USSV) requires a 6 degree of freedom dynamics simulation in the time domain. In order to be interactive, the VE requires real-time performance of the underlying dynamics simulator. In general, the dynamics simulation of USSVs involves the following four main operations: (1) computation of dynamic pressure head due to fluid flow around the hull under the ocean wave, (2) computation of wet surface, (3) computing the surface integral of the dynamic pressure head over the wet surface, and (4) solving the rigid body dynamics equation. The first three operations depend upon the boat geometry complexity and need to be performed at each time step, making the simulation run very slow. In this paper, we address the problem of physics preserving model simplification for real-time potential flow based simulator for a USSV in the time domain, with an arbitrary hull geometry. This paper reports model simplification algorithms based on clustering, temporal coherence, and hardware acceleration using parallel computing on multiple cores to obtain real time simulation performance for the developed VE.