After the Battle of Karphos (TE 361) the Empire continued to weaken. In TE 361-380 Patala took over much of the Transgeled. On 26 August 381, Patalanian forces made a surprise raid against Terra, defeated Terrad, and sacked New York and other Terran cities.
The Empress withdrew to Laxus, which became the new Capital of the Empire.
Over a period of tendays, the attackers were defeated (mostly through valiant efforts of the Terran Home Guard), and Terra was restored to self-rule -- but Laxus remained the Capital.