Just shoot him and jump over him when he charges at you. Be wary of when he jumps in the air because he could connect with you as you are jumping. The reward for fighting Balrog is 5 experience points for your weapon.
Use the same tactics that you used for the first fight against Balrog. The only real difference is that he may occasionally open his mouth, in which you should either jump over him immediately or run away. If you have a level 3 polar star this battle will not be hard.
