C -for me. Most succinct in meaning and clause construction
Machines powered by hydraulics are not driven by the steam produced by boiling water, but rather, high-pressure fluids are transmitted throughout the machine to various motors and hydraulic cylinders.
a) water, but rather -
there should be a 'by' 'but rather by' - cause we are connecting two processes
b) water, but instead -
but instead; are two words with two tonal indications- but indicating contrast and
instead, indicating an alternative - very slight difference, but it exists
c) water; instead - seems valid. Following semi colon, we have the complete independent clause (appropriately after semicolon and 'instead'). Sentence would read as "water; INSTEAD, high-pressure fluids are transmitted throughout the machine to various motors and hydraulic cylinders.)
d) water; rather - incorrect tone
e) water; but - incorrect word, there is no contrast, as such
Hope it is C!