Based on what I'm seeing in the upper and lower half of Kagrenzel, it seems to be a mixture of Falmer and Dwemer technologies. As if it were some sort of research on the teleportation technology/magic that the Falmer had (evidence: Wayshrines of the Lost Vale) which most other races don't have. The Psijic Monks being the only other people that I've personally seen with quantum entanglement magics. Combine that with the ball of light in the center, closely resembling the magic activation of the wayshrines, this looks as if it were a development after the subjugation of the Falmer race before they devolved/evolved/revolved, and before the complete disappearance of the Dwemer race. Now given that there are large skeletons in the basement as well as Falmer, I'm going to actually venture a guess that something about this location mixing with the magics of the Falmer and a genetic encoded lock from the Dwemer, opens a portal into an Aether region much like an Oblivion plane, but closer to a primordial version that the Dwemer could shape for themselves. However, the Dwemer did not want any errant races coming to their plane of existance as they seemed to be a rare level of racist (evidence: Blinding of the Falmer, Overt hatred of the Nords, Seclusion of underground life, Abandonment of all other races), decided that they would extract from the Falmer their teleportation technology and then use their genetic encoding technology (evidence: The Dwemer Lockbox to get the daedric book) to keep any other race from entering. During their Exodus from Mundus, the Dwemer had a rather large animal kept in the lake below Kagrenzel that should any paticipant be of less than full blooded Dwemer, they would be dropped in to the lake below and devoured by the beast. That being said a few Falmer had attempted to do so, which is how they wound up in the lake and started a small hive. Here is where we leave from evidence and step into conjecture. It would not be beyond reason to assume that the reason that the Dwemer had developed this without any particular living quarters was because all Dwemer were given orders to attempt to enter the Dwemer Aetherial Plane. This explains the complete lack of warning for the loss of the Dwemer, as well as why so much is abandoned and yet there are nearly no major discoveries or sciences that the dwemer left behind. Before one thinks that aetherium would be a major discovery, remember a few things; It was aandoned as a research field because it caused too much instability for the Dwemer; On the Aetherial Dwemer Plane, there would be nobody to fight (also explaining why so many weapons and so much armor was abandoned); and let us assume that it is possible that they had been researching Aetherial planes for quite some time and so there is a reason that it is called Aetherium and somehow would have most likely been a risk taking it into an Aether plane. From here we can assume that the Dwemer, while not in particular becoming gods, now existed on the godly plane. Without the powers of a god, despite achieving access the Aetherius, the Dwemer are now researching to their hearts content among the cosmic eddies of the godly plane.