[Chanak]

SPOILER below
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The Ancaria Campaign is completed when you:

1. Slay Baron DeMordrey
2. Destroy the Sakarra Demon
3. Arrive at Shaddar-Nur for the last time. After you have destroyed the Sakarra Demon in #2, you return to the throne room to find that Shareefa is actually Shaddar. He slays Valor, kidnaps Vilya, and teleports away. Ancalata the Wise (whom you will find in the throne room) tells you to travel to Shaddar-Nur and rescue Vilya. When you enter Shaddar's tower, the portal in the tower's main room will activate, permitting you access to the chamber wherein you will find Shaddar himself.

Note that you aren't required to actually fight Shaddar in order to unlock the next difficulty level. When that portal in the tower activates, a dialogue box will pop up instructing you to export your character in order to play the game in the next higher difficulty level.