User blog comment:IamJakuhoRaikoben/Chapter 355: Song of the Fairies, Review./@comment-7418318-20131010172652/@comment-7418318-20131010174359

I doubt he ever mistook Atlas for a Demon in the first place. That was just a theory that the Giants and Mages threw together to make some sense of the situation, but even they themselfs weren't really convinced by it.

If he just went there to exterminate an imagined Demon, why did he just freeze it, instead of killing it?

How could someone supposedly specialized in hunting down Demons ever mistake the spirit of a dead Dragon for a Demon?

And why would he send Minerva, Doriarte and Mr. Ogles to keep watch over the frozen village?

Now add to it Minerva's comment about someone "retaking" the village and I'm pretty sure he froze the area for some other, not yet revealed reason.