Step 1: Find the horizontal velocity of the stone.
The centripetal acceleration is
\[
a_c=\frac{v^2}{r}.
\]
Given,
\[
a_c=125\,\text{m s}^{-2},
\qquad
r=0.8\,\text{m}.
\]
Hence,
\[
v^2=125\times0.8=100,
\]
\[
v=10\,\text{m s}^{-1}.
\]
Step 2: Find the time of flight.
After the string breaks, the stone is projected horizontally.
The horizontal distance travelled is
\[
x=vt.
\]
Given,
\[
x=10\,\text{m},
\qquad
v=10\,\text{m s}^{-1},
\]
therefore,
\[
t=\frac{10}{10}=1\,\text{s}.
\]
Step 3: Calculate the height.
For vertical motion,
\[
h=\frac12gt^2.
\]
Substituting,
\[
g=10\,\text{m s}^{-2},
\qquad
t=1\,\text{s},
\]
\[
h=\frac12(10)(1)^2=5\,\text{m}.
\]
Hence,
\[
\boxed{h=5\,\text{m}.}
\]
Therefore, the correct option is \(\boxed{(B)}\).