In French, the construction en + [participe présent] is used to mean while ________ing. It is called le gérondif. This is one use of en; the use you’re thinking of is that of en as a pronoun that replaces phrases with de/de la/du. This is not the case here, as you’ve pointed out.

With this in mind, I (a non-native French speaker) would translate your sentence as

The taxi rose vertically. Gaal watched through the curved window while instinctively holding on to the seat.