Rebel Elves are enemies similar to Elf Soldiers, but with a mix of Elf Villagers in their mobs. You encounter them after accepting the Fay of your orientation as your mistress. A request from an Everlightian for an audience will soon follow, and the representative guest will inform you that there are bombs going off around the Everlight Resort. The fat ladies of the resort seem to have warmed up to the Elves so it is easy to interpret this open invitation as a potential ambush.
These Elves faced abandonment by Fay and their sanctuaries were destroyed by the Empire; the blame was mistakenly placed on the Fourth Overlord, hence the Elves' rebellion.
After their defeat, the Villager Rebel Elves submit, leaving you with the two usual decisions: destroy or dominate. You can either kill them or enslave them for more wealth and Lifeforce.