As long as the temperature of the flame is high enough to melt/weld the steel/metal under-water, yes, it can be used.
And let us stick to some basics. As long as you have the following 3 conditions, a flame/fire will burn -
1> Temperature high enough to cause combustion
2> the fuel which will burn
3> Enough (gaseous) Oxygen supply.
Basically, underwater, Temperature and oxygen gas would be difficult to get. However, acetylene flame is created inside a closed chamber (where a fuel and oxygen are mixed, then spark ignites the flame) and thrown out of a narrow nozzle. This solves the oxygen gas problem. Now the temperature of an acetylene flame is way to high. so the impact water has on the flame temperature is overall less, and thus, you can melt/weld under water.