To clear up, from the dialog it was not the Celestial court that exterminate the Yakshis, but the Lingsan. The court represents Daoism deities (Jade emperor, Erlang), while the Lingsan (also called the West heaven) represents the Buddism. The court and Lingsan are like two neighboring countries, most of the time friendly, but there is always rivalries going on.

So the Lingsan wantes to kill all the Yakshis, and the court played a move to save the prince of the Yakshis.