Answer with Explanation:

Let C.P. of 1 litre milk be Re. 1

Then, S.P. of 1 litre of mixture = Re. 1, Gain = 25%.

C.P. of 1 litre mixture = Re.(100/125 x 1) = 4/5 

By the rule of Alligation, we have:

C.P. of 1 litre of milk Re.1    4/5

C.P. of 1 litre of water 0   1/5

Mean Price Re. 4/5 

Therefore,Ratio of milk to water = 4/5 : 1/5 = 4 : 1. 

Hence, percentage of water in the mixture = ( 1/5 x 100) % = 20 %