I wonder why in the scene where Atou asked Takuto whether she was too harsh he switched to his ominous form for a second. Could this be the same as Ainz from Overlord? Being evil being makes you lose compassion?

I thinkaybe but not quite. Ainz was a bit self aware about it. He questioned himself over killing humans.

Takuto just didn’t care. He started his nation and wanted to build a peaceful city. These “good guys” came to attack/kill/expose them. Atou tried a peaceful route. But the “good guys” still ended up invading the “peaceful elves” so they left Atou no choice. They were enemies. Enemies just need to be crushed. Takuto saw the entire thing through his RTS Atou view (the red eyes) so he saw how devoted they were to thier mission regardless of harming the innocent and persecuted dark elves.

This is also from the same nation that hunted down neutral dark elves because of thier potential threat.