Probably the best thing would be to parge the interior wall with a plastic new age cement mixture. The coating will serve a triple purpose.
1) To give you a smooth wall.
2) To act as a moisture barrier.
3) Strenghten the wall.
You'll put it on with a trowel and smooth it down as you go. It might be a bit of a challenge because it's harder than it looks. After the stuff is dried you can take a power sander to it, making sure to take in to account proper safety. That should smooth it to an almost glass like smooth finish.