Any Ocean or River biome will do!
Two things: 1. The encased Fan needs to face downwards. Otherwise you can't put the nozzle on it. 2. When the parts are in place, the Fluid Tank will fill up with water instead of the Fishing Machine's internal tank. You can pump water from both tanks.
It's a fluid void. What more could you ask for?
Ideally you'd build it in the water, but the water has been removed for clarity.
Note: additional sealife (like the crabs and stuff) are NOT included with this mod.
Left: Autofishing Machine Right: Fluid Void
You can actually stop or freeze the rusting by waxing the bars. You can also use an Axe to scrape off the rust before it's too late.