Translation:She is taking the little fish up from the water.
Using "up" is fine, but not necessary—the fish can only either be in or out of the water. Direction doesn't matter, since it can only go up to be out. That's why it would feel clumsy.
I appreciate that it is redundant. However, it is merely a matter of style.
I think pick up would make more sense than take up but I'm not sure that's exactly what they mean. It was counted as wrong. I reported it.