I have a Valhelsia 2 server running and we just created the portal. Whenever someone gets near the portal to come back to the minecraft dimension they take constant unblockable damage. Whenever someone goes through the portal they take almost ten hearts of damage. The server reports deaths as suffocating in walls.

Are you running just Forge on the server, or any sort of Forge/Bukkit hybrid?

This only uses Forge straight from the Curse launcher.

Does it matter if the portal structure is created underground?

It could, yeah. The players might be half inside a wall, if there is a wall directly up to the portal of one of the sides

You were correct the portal needs space around it or it suffocates the players. This can be marked as closed.