This battle occurs about a third of the way through the game, at the forest temple. If you lose, you can revive and try again. It's a very tough fight, so you may want to grind out a few levels before trying a second time.
Your tactics will very based on who you put into your party. Focus on the Cleric (red hat) first, then the druid (wolf's head). If you can, try to stun or sleep the rogue (green hat), then the mage(Blue hat) to prevent damage.
My party was a paladin, warrior, rogue, mage, and druid. I had the first three focus on the enemy cleric, with the rogue using stunning strike every round. Meanwhile, my druid used sleep on the enemy mage, and my mage kept hitting the enemy rogue with the stunning ice spell.
Check out this achievement for what to do next: