You don't need to kill the dwarves. Destroying the altar will restore them to normal. If you do kill them all, oh well.

You need a scroll from here, either from a secret passage or from a dwarf, giving you the solution to a puzzle upstairs, on the first level of the tower.

There is a manna circle here.

Spoilers

Press shift-F8 to display current location.

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Start @(8,2)
Stairs back to tower @(8,12)

- Evil dwarf @(4,6) will give you a scroll, after the altar is destroyed, and if he is still alive.
- The hole in the roof is sealed, and nobody has yet found any way through it or a reason for it to be there.

- Button @(5,3) opens passage behind you
- Button @(6,8) opens secret door @(4,6)
- Manna circle @(2,2)
- Scroll with puzzle solution @(2,8), and on dwarf @(4,6)
- Well @(5,1)
- Magic black slayer arrows @(2,3) (9,11)
- Dagger of piercing @(4,6)