The story of Sage Vishwamitra cursing the Saraswati River is found in the Shalya Parva of the Mahabharata. Sage Vaishta and Sage Vishwamitra had an ongoing feud, which was legendary.
Once, Saraswati River rescued Vasishta from the wiles of Vishwamitra by changing her course.
Sage Vishwamitra is famous for this uncontrollable temper. For interfering in his matters, Saraswati River was cursed by him that for one year her waters would flow with blood.
Demons were happy to see blood in the river. They drank it. Sages who saw this rescued her.
But when Saraswati River was purified by the sages, the demons who drank water from the river were afflicted by hunger.
Out of compassion, Saraswati River assumed a new form called Aruna, the reddish one. The demons who bathed in this river attained moksha or liberation.