William ..., US novelist whose works were set in the southern states (8)
I believe the answer is:
faulkner
(Other definitions for faulkner that I've seen before include "Sound and Fury author" , "William ..., US novelist who wrote about people in the southern states" , "William ..., US winner of 1949 Nobel Prize for Literature had rank flue" , "William --, US Nobel prize-winning novelist" .)