The long continuance of the Araucanian war, and the great importance of the kingdom of Chili, at length determined Philip II. to erect a court of Royal Audience in Chili, independent upon that which had long subsisted in Peru. To this court, which was composed of four oydors or judges and a fiscal, the civil and military administration of the kingdom was confided; and its members made a solemn entry into the city of Conception, where they fixed their residence, on the 13th of August 1567. Immediately on assuming their functions, the judges removed Quiroga from the government, and appointed Ruiz Gamboa to the command of the army with the title of general. Learning that Paillataru, the toqui of the Araucanians, was preparing to besiege the city of Canete, Gamboa hastened to that place with a respectable force, and finding the toqui encamped not far from the threatened city, he attacked his fortified post, and defeated him after a long and obstinate contest. After this victory, Gamboa overran and laid waste the Araucanian territories for a whole year without opposition, and carried off great numbers of women and children into slavery. He employed every effort however, repeatedly to induce the Araucanians to enter into negotiations for peace, but to no purpose, as they preferred the endurance of every possible evil before the loss of their national liberty, and continually refused to listen to his proposals.

As peace, so necessary to the well being of the Spanish settlements in Chili, seemed every day more remote, in spite of every effort for its attainment, it at length, appeared to the court of Spain that the government of a country in a continual state of war was improperly placed in the hands of a court of justice: Accordingly it was again confided to the management of a single chief, under the new titles of President, Governor, and Captain-general. Don Melchior Bravo de Saravia was invested with this triple character in 1568; a man well qualified to act as president of the court of audience and civil governor of the kingdom, but utterly incompetent to sustain the charge of captain-general; yet he was anxious to signalize the commencement of his government by the attainment of a splendid victory over the redoubtable Araucanians, for which an opportunity soon offered, but which redounded to his own disgrace.

Paillataru had collected a new army, with which he occupied the strong position of Mariguenu, so fatal to the Spaniards, and which for some unaccountable reason they had neglected to fortify. Immediately on learning this circumstance, the governor marched against the toqui at the head of three hundred Spanish soldiers and a large auxiliary force. Like several of his predecessors, Paillataru had the glory of rendering this mountain famous by the total defeat of the Spanish army. The governor had the good fortune to make his escape from this battle, and precipitately withdrew with a small remnant of his troops to Angol, where he resigned the command of the army, appointing Gamboa major-general and Velasco80 quarter-master. He was at this time so intimidated by his defeat, that he ordered these officers to evacuate the fortress of Arauco, so often already destroyed and rebuilt. While escorting the inhabitants of that place to Canete, these officers fell in with a division of the Araucanians, which they attacked and defeated. Yet Paillataru, who had removed from Mariguenu to the post of Quipeo, marched two days afterwards against Canete, which he proposed to besiege; but Gamboa advanced to meet him with all the troops he could collect, and gave him battle. The engagement continued more than two hours, and was one of the bloodiest and hardest contested ever fought in Chili. Though severely handled, the Spaniards remained masters of the field, and the Araucanians were compelled to retreat. Gamboa now invaded the Araucanian territory, intending to ravage it as formerly; but Paillataru, having repaired his losses in a short time by fresh levies, returning to defend his country, and compelled Gamboa to retreat with loss.

From this time, till the death of Paillataru, about four years afterwards, a suspension of arms or tacit truce was observed between the Spaniards and Araucanians. This was probably owing in a great measure to the general consternation occasioned by a dreadful earthquake which was felt throughout the whole country, and did great injury to the Spanish settlements, particularly to the city of Conception, which was entirely destroyed. Ever anxious to consolidate and give importance to their conquests, the court of Spain erected in 1570, a new bishopric in the city of Imperial, to which the vast extent of country between the river Maule and the southern confines of Chili was assigned as a diocese81.

About this time the Mestees, or descendents of Spaniards by Indian women had multiplied greatly in Chili, and perceiving the great advantage that might be derived from their assistance against the Spaniards, and to attach them to their cause by a strong acknowledgement that they were their countrymen, the Araucanians conferred the office of toqui upon one of these men named Alonzo Diaz, who had assumed the Chilese name of Paynenancu, and had distinguished himself for ten years by his valour and abilities, continually fighting in their armies. If his predecessor Paillataru had the fault of being too cautious in conducting the operations of the war, the new toqui was on the contrary so rash and daring, to avoid that imputation, that he constantly attacked the Spaniards with far inferior numbers, whence all his enterprises were unfortunate as might naturally have been expected.

Immediately on receiving the investiture of the toquiate, he crossed the river Biobio, probably intending to have attacked Conception; but, before reaching that place, he was attacked and defeated by the quarter-master, notwithstanding the great valour with which he defended himself for a long time. Among the prisoners taken by the Spaniards on this occasion were several Araucanian women, all of whom killed themselves the same night. Paynenancu, having escaped from the carnage, raised a new army and marched against Villarica, but was again defeated by Rodrigo Bastidas, the military commandant of that city.

While the war continued to rage in 1575, the licentiate Calderon arrived in Chili from Spain, with a commission to examine and regulate the government of that kingdom. His first step was to suppress the court of audience, on the sole principle of economy, and instead of the president Melchior Bravo, Rodrigo Quiroga, who had been formerly appointed governor by the audience of Lima, was reinstated in that office. Having assembled all the troops he could raise, the new governor proceeded in 1576 to the frontiers, to oppose the ravages of Paynenancu, who, though twice defeated, continued to harass the Spanish settlements by frequent inroads. But, as the toqui carefully avoided any rencounter, the governor contented himself with ravaging the Araucanian territories in revenge. Having afterwards received a reinforcement of two thousand men from Spain, he gave directions to his father-in-law82 Gamboa to found a new city at the foot of the Cordellieras83, between the cities of St Jago and Conception, which has since received the appellation of Chillan from the river on which it stands, and has become the capital of the fertile province of the same name. Shortly after the foundation of this new city, the governor died in 1580 at a very advanced age, having previously nominated Gamboa to succeed him in the government of the kingdom. Gamboa continued three years in the command, continually occupied in opposing the Araucanians in the south under their toqui Paynenancu, and in defending the kingdom on the east against the Pehuenches and Chiquillanians, who now began to molest the Spaniards at the instigation of the Araucanians.