Can my gym do this to me?

It sounds like a perfectly reasonable compromise to me. I don’t understand why it bothers you. That is a fairly common arrangement in many facilities.

You feel inconvenienced because swimmers are using the one lane? I’m not sure I understand what your size has to do with it. Are you embarrassed doing the aqua aerobics in front of swimmers? Do you feel your class should have full access to the pool during that hour and that swimmers should wait?

Assuming the gym is keeping within health&safety regulations, there’s not a whole lot you can change about the arrangement. It is their establishment and this is their capacity planning (up to 12 pax = 2 lanes).
Has your group considered adding another evening per week and then split the group? that way it’s only twice a week, but you’ll be only half the people sharing the two lanes. It’s just an idea and if you (and the rest of your group) are uncomfortable with the current set-up, why not think creatively and discuss suggestions/options with the gym management.

I think the gym is definitely within their rights to set the policy, but if enough people complain or can make an alternative suggestion, they may compromise. Why not suggest to them, that the aerobics class can use all three lanes with the proviso that if a swimmer shows up, the class has to relinquish a lane to the swimmer?

I take water aerobics too and realize how protective we all get of our space, but it would be a shame to give up something that you are enjoying and that is helping you, if a compromise can be worked out. (Or if not, you may have to adjust your comfort level to working within the two lanes. Sometimes it helps if you can find an area (at the back, on the side) that you feel is comfortable and gives you enough room to maneuver.)

If its not illigal, they can do it.

See if anyone else in your group feels the same way, and if so then file a complaint together. However, the gym are well within their rights to do this.