Iago is located in the NW corner of the room. In that same room, there are two fire orbs that can cause an explosion and damage anyone caught in it. Next, there are several locked doors and chests here. There are enemies carrying some door keys and chest keys but it will be better if you'll bring Kagero, Kaze, and/or Saizo. If your forces are well-equipped and adequately leveled at this point, you can scatter your troops for sweeping enemies and looting.
The chests contain the following items: Silence, Goddess Icon, Armscroll. The archer in the second treasure room has a total of 13000g so make sure to kill him to get the gold drop. Iago won't attack any of your troops unless you come in his attack range. That said, you can surround him with your forces and gang up on him. Don't bother damaging him with the fire orb nearby since he won't take any damage from it.
After this mission, a lot of new building upgrades will also become available.