Gu Youyou rebelled openly, without any attempt to hide it.
To speak of rebellion and then act on it, without any false pretenses, instead put the Mirror Demon Ancestor on the spot.
As for punishment, the Demon Clan for the time being cannot afford to send more demons to the Human World, thus these demons in the Human World are still the hope of the Demon Clan finding spatial nodes to descend upon the Human World.
To punish them would mean the Demon Clan is ready to be confined in the Nine Netherworlds indefinitely—who knows when the next era of great strife will come?
Yet, to leave them be would mean these demons in the Human World will also not help find spatial nodes, leading to the same result.
The Mirror Demon Ancestor had no choice but to placate them, soothingly saying, "It's all a misunderstanding, why escalate to this extent? Your previous extreme actions, I can understand.