Loki is annoying, nothing more. There are several ways to deal with this:
1) Disciples. Having a Tier 2 Disciple unit spread their culture to a new city immediately grants a border pop, and prevents Loki from taking cities.
2) Monuments/Temples. Getting one up quickly will also stop Loki from taking your city, and can confer other benefits.
3) War. You don't actually have to invade the Balserphs, but declaring war will force Loki out of your cities.
I - and a couple of my elite guards - cornered Loki once in an Evermore cul-de-sac and the snarky deckhand, puppetmaster and labor thief fell to our blades and clothyard arrows. Silveric's first strikes came in handy that evening. I heard later that Loki loses his withdrawal options in cities; apparently his magicks require open ground.
Or failing to ambush Loki in a city, one could simply destroy every Balseraph city on Erebus. Harsh, but it's the only the way to be sure.
We placed his head on a spear near the passage out of the Mountains of Madness.
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