Sword of the Lictor, chapters 32-35
Severian enters the castle ahead of the army. He is after all, expected. He meets Baldanders and Dr. Talos. It is revealed that Baldanders is constantly growing, and Talos is a form of doctor homunculus. Baldanders is also performing gruesome experiments and alterations on the captive lake people.
There are also three aliens within, their spacecraft overhead. Baldanders has the jewel, Severian tries to claim it back, and Baldanders hurls it from a window claiming to despise its superstition. It flares with light - and a torch thrown from a window was the signal for the "army" to attack.