My water heater (AO Smith – GAS 75 GAL) is about 14 months old and my house is probably about the same. I hear a knocking sound close by the water heater closet which is accessible from the outside. This knocking sound happens randomly but I noticed more often or whenever someone is using hot water.
Sometimes it's a fast knocking sound (twice every second) sometimes it's slow, like one knock every two seconds. Sometimes it's even slower like one knock every 15 seconds or 30 seconds. More often, it starts fast then slows down. I can't seem to find where it's actually coming from but it seems from the inside of the water heater. I've also flushed my tank twice now and not much build-up that came out either. My hot water pipes are all insulated and I notice this only happens during the cold December weather in Los Angeles, which is not really that cold compared to East Coast Weather - about 40s to 50s here in LA. PLEASE HELP, it's driving me crazy...
Is this a water heater problem or a plumbing problem?

Your water heater may be equipped with a heat trap nipple, basically just a regular pipe nipple with an insert and a marble, an energy conservation device to prevent heated water from rising into the pipes. It will be the pipe nipple that screws directly into the top of the water heater and you can pull out the insert with a pair of needle nose pliers and throw it away along with the marble. It would also be a good idea to check here for a possible recall on that particular water heater: http://www.cpsc.gov/cpscpub/prerel/prhtml06/06002.html

Thank you for replying to my post. I just went outside and I don't see this heat trap nipple. I only see the supply (cold) and the hot outlet, and of course the vent on center. Thank you for the link as well, the model number of my heater was not listed - which is FCG 75 270, AO Smith Web Site is www.hotwater.com
I've contacted AO Smith and they said that they do not answer to any noise problem or is not covered by the warrantee which I think is not right. I’ve used other brands before and I have never had this problem before.
Few more info – my house is on a raised foundation, fully insulated. The door of the water heater closet has two vents (top and bottom) as required by code and the door itself is also an insulated door. This closet is also fully insulated – vent goes thru a chase specially made for it all the way to the roof (2 story).

Follow Up:
I just went out again and waited and waited, finally - the knocking sound appeared again. It after literally sticking my ear against the tank, Finally - I think it's starting from the hot outlet, meaning from the left side of the tank where the hot water goes into the house. Hopefully this info will help. Could this be the heat trap nipple that LA Marlowe is talking about?

It is possible. The heat trap nipple will look identical to a regular iron pipe nipple from the outside. Knocking can be a bear to track down, even for a professional plumber. If you google "water heater knocking" you will see a host of possible causes and solutions ranging from sediment, or air, to a tight spot in the piping or a baffle in the flue pipe. I wish you luck!

Perhaps its sand or silt at the bottom of the hot water heater. This causes air to be generated within the tank to bubble when heated. What happens is like when you boil water on the stove. If you place a few grains of sand on the bottom of the pot you will see air bubbles forming out of them like magic. Your hot water heater collects sand and silt on the bottom which causes this to happen as well. The side of the hot water heater has a drain valve. Its very reason is to flush out the bottom of the tank. In fact if you live in a area in which you have fire plugs in the street, you see them flush them once and a while. This is to flush out any sand an silt that gets into the water system. When they do this they disturb the water and the silt ends up in your pipes.
Check with the papers that came with the hot water heater, they recommend that you flush this tank once a year.

Thank you LLC and LA Marlowe. Yes, I have flushed this tank already (twice) and no difference and Marlowe is right, there are several different reasons for this knocking sound. However, I do believe that it has something to do with Metal Fatigue because I notice that it only happens during the cold weather season. I guess if I can't solve it now, I'll just have to wait until it gets a little warmer again and see if it disappears.
Last night when I was out and checking though, I really felt that sound/vibration emulating from the pipe attached to the hot water tank where the hot water comes out to supply the house.

Check the outlet pipe route to see if a pipe hanger or strap has the pipe bound up. As the pipe expands, it may be rubbing against a joist or a hole through a wall plate.