If you reload a save before triggering the cutscene with Zagan you can leave this fight until you are at a higher level. I don't recall what level I was when I did this quest, but I didn't take any damage, so didn't even have to move until Zagan and his minions were all dead.
Are you using the equipment with +40% hit points and offence? You could try the piece with the defence bonus instead, but generally a higher offence is better, IMNSHO.
Do you have any dragon skill books that you have not read yet (ie from quests), which you could use to boost skills or learn new ones? What bonuses do you have from equipment?
The Dragon Shield skill can help (though ideally it is better to cast it before approaching a tough fight, when the time taken to cast it doesn't leave you vulnerable). Summon Friend can provide a distraction, but I'm not sure how much help it would be in a confined space.
Other than that, the techniques that work in DKS / D2:DC should also work in the original release of D2:ED -
Zagan tips.