The demon can be pretty nasty, one of hardest battle in the first game as far as i remember. It's been a very long time since i've played BG1 the last time.
I usually relied heavily on AoE spells in BG (some say this is cheap but who cares) as a method of weakening nastier bosses or even kill whole mobs of lesser enemies. After reading through an old post of mine i think i used a similiar tactic against the demon: i rushed the cultist chamber with my buffed group, stayed close to the entrance and ordered my spellcasters to unleash some AoE spells (especially fireballs) and used ranged attacks at the cultist to get rid of them. First concentrated on the cultist leader, summoned mobs to distract (not even harm) Aec'Letec. I've ignored the demon at this stage, killing the cultist was the goal. Using otilukes sphere against the demon is worth a try, if it succeeds you have more time to get rid of the cultists. Dunno anymore if he's immune to spells like grease and web, but if not, try to cast 2-3 of these, could slow him down quite a bit. Dispel Magic (or even better, i think there are arrows in Bg1 who cast "dispel magic" on impact) can free NPC's if they're effected by the demons gaze.
After killing the cultists i fled the chamber, healed and buffed (haste, invisibility, all sorts of potions and protection spells, free movement... all i could think of, but it's important to check how long the buffs will work - casting the long-lived ones first and the short-lived last is obviously important) my two main melee chars and send them back into the chamber (alone) to finish off the demon.
Using only two fresh, buffed fighters with good magic weapons was more efficient than risking my whole group i think, and they killed the demon quite fast. If one of the melee fighters is gazed, i guess you could send down a caster, cast dispel magic and go back upstairs again. If you can't split up the group (like "You must gather your members" or however this dumb message was), you could try to re-enter the chamber with your whole group, attack only with the buffed melee chars and run away in a far corner with the rest of the team so they're not endangered.