I had a similar toy back in the 1960s in the UK. It was a bunch of little bricks and some special water soluble glue that acted as mortar. I used to build fire places and chimneys, and then light little small fires and watch the smoke come out. When you want to build a different model, you just submerged the old model in water and (after a time) it would just fall apart.

My google-fu isn't working well today otherwise I could find a reference to this toy (I can't recall what it was called).

Brickplayer[1] is the closest product that matches your description that I can find. If anyone is interested in a similar product, I also stumbled upon Teifoc[2] which seems to be a more modern analogue produced in Germany.

[1]https://www.brickplayer.co.uk/Photos/The-Kits/1

[2]http://www.eitechtoys.com/teifoc/

When visiting our grandparents as kids, my siblings and I got to play with our dad's and uncle's sets. They lived in Germany at just the right age to have them.

Well love stones acquire an awesome, soft, rounded off shape.

Same here! Sadly they don't seem to be made any more...

The linked Wikipedia article seems to indicate otherwise... And, indeed, it looks like the company both exists and has an online store.

http://www.ankerstein.de/

http://www.ankerstein-onlineshop.de/

According to the wiki page they're still manufactured and are widely available in Germany.

From the description in Wikipedia (quartz sand, chalk dust, and linseed oil) it doesn't sound like they'd be too hard to make.