Lady of the Lake

is an entity wrought from Chaos, currently dwelling in Lake Salisbury.

History
According to the legend, the Lady of the Lake bestowed the sword Excalibur to king Carfen.

Current arc
When Merlin decides to carry out Arthur's awakening, she teleports to Lake Salisbury along the Sins and Elizabeth. Upon putting herself over the lake, Merlin removes Arthur's body still pierced by Excalibur from the Boar Hat. She says that all the preparations are set and asks the "princess" if she is ready, to which a voice from the lake asks if it is finally time to meet their master.

When Arthur is revived as the "King of Chaos", Meliodas asks Merlin why she awaken a power that is both a blessing and a curse, and demands to know what her desire is. The voice from the lake asks to be allowed to explain instead of Merlin, about the desire made by a single lonely witch who wandered the land in search of chaos. Meliodas asks the voice to tell him who it is and to show itself. The being, revealing herself as the Lady of the Lake and the "Priestess of Chaos", apologizes for not being able to leave the lake. Meliodas says that in 3,000 years he have never heard of any being from Chaos except from Merlin a few moments ago. The Lady of the Lake reveals that this is because Merlin hid that truth from everyone.

Meliodas asks her what she is talking about, which leads the Lady of the Lake to narrate Merlin's past and her love for Meliodas who was never reciprocal. The Lady of the Lake finally explains that Merlin dedicated her life to resuscitating a being known as Chaos, the one who created the world and the five races, and for that she used the Seven Deadly Sins to destroy the Demon King. Diane reacts very angry, stating that Merlin is their comrade and that she doesn't know what she says.

The Lady of the Lake admitd that she never lived or talked with her. However, she reveals that is aware of a series of facts, such as that Merlin was the one who asked the giant Dabuzu to create the Coffin of Eternal Darkness to seal the Demon King and the Supreme Deity. And recently, it was also Merlin who deliberately delayed her Chrono Coffin for the Demon King to possess Meliodas, that she was the one who reactivated Elizabeth's curse after Meliodas destroyed it and finally made Meliodas launch their combined attack on the lake; All in order to achieve her goal.

Meliodas exclaims furiously that if she reactivated the curse for that reason, to which Merlin replies that she also saved Elizabeth. Meliodas then asks if forming the Seven Deadly Sins was also only in search of her goal, to which Merlin does not respond. The Lady of the Lake mentions that hating someone until she wants to kill him but at the same time being able to love him is what human beings do, so she wonders if since they and Merlin are of different races, they will ever really be able to understand each other.

When Meliodas reproaches Merlin for using the Seven Deadly Sins to revive a being that may never exist, the Lady of the Lake states that Chaos exists and that they have already been face to face with it for a long time. When no one seems to understand, the Lady of the Lake reveals that they have been traveling on it and that all that time has been waiting for her resurrection; leaving everyone shocked to see that she refers to Hawk Mama. The Lady of the Lake says that Chaos is a will, so it does not manifest itself in physical form and that what the two gods believed to seal was not really Chaos. There, Hawk Mama is revealed to be a moss shell whose content, Chaos, is now inside Arthur.

When Cath shows itself happy to see Arthur, the Lady of the Lake is alarmed by its presence and tells Merlin not to let it approach Arthur. Cath then devours one of Arthur's arms and when it transforms into a monstrous form, the Lady of the Lake tells them that they must retrieve their arm or they will soon know how powerful even a fragment of Chaos is.

Trivia

 * The Lady of the Lake is directly based off on the character of the same name from the Arthurian Legends.