Interesting.  It happened to me, too, but my city was automatically restored to me without my doing anything.  Take a look at my description in this thread.

IT must be Kraxis racial ability betrayal which allow AI to cast broken loyalties spell.

I personal find broken loyalties spell is stupid when AI allow to cast it on fully stationed city that has low unrest. (Consider the ability cost is only 1000 gold which is nothing at end of game.)

Yep, that is the Kraxis racial ability spell. Put them down fast before they start getting money, or they will be a pain in the butt.

edit: In regards to how the spell works, I do think it should be reworked. I've mentioned before that I think it should cost more gold based on the level of the city. Or perhaps a city enchantment that, if not dispelled by the end of the turn, takes over the city. SOMETHING that lets you prevent it. And there should definitely be a popup telling the player what happened.