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There's an o-ring sits in a groove on the top of your driveshaft spline. It needs to be replaced if missing. Drop the LU and check. Make sure you also put some molylube on the sides of the splines on reassembly.
It is at the bottom end of the splined area. You can't miss it. Make sure that o-ring is in excellent condition, or replace it. It shouldn't have fallen off. Part number is 303059 (18-7134 here at iboats)
There's an o-ring sits in a groove on the top of your driveshaft spline. It needs to be replaced if missing. Drop the LU and check. Make sure you also put some molylube on the sides of the splines on reassembly.
Well, I do not have a pic of your motor, but here is a pic of a '57 35HP showing the groove where the o-ring slips into near the top of the driveshaft: