Rusty water is not much of a health concern, but it might affect the taste and look.

To remove rust, you can use a brass wire brush against the affected areas. Make sure to clean up any dust that may fall to the bottom during the process. If you do not have a brass wire brush, you can also use sandpaper, but the result might not be as nice.

After clearing the rust you can apply a food safe corrosion protectant like this one to prevent further rusting.