pronoun reference

Yes but make a wholesome call - not just based on pronoun ambiguity. If gmat has to muddy the correct answer - it will make it unattractive - Not the girl in the baywatch

If this sentence is in CR then I will assume that "it" is referring to extraterrestrial life.

It refers to "extraterrestrial life". The use of pronoun is ambiguous only if it creates two logical sentences by refering to two or more antecedents.

to clarify, your sentence really doesn't make sense unless it [your sentence] is corrected by either the following:

This machine, searching for extraterrestrial life, will not find it.

In this example, i made the present participle + prepositional phrase modifier (searching for ET life) a nonessential (nonrestrictive) modifer. To do this, i need to specific the machine with the word This. [Note also that searching is NOT a gerund in this example; searching is serving as an adjective (present participle to be exact) that modifies machine.]

Or, you can correct the sentence by removing the comma:

A machine searching for extraterrestrial life will not find it.

It can be referred to machine or to life... ask the question: does it make sense to say, a machine will not find this machine? sounds quite funny, but still, it can be ambiguous even if it's quite obvious that the it should refer to life.

hope that helps