Serene Demon Sword replaces Demon Decapitation when Luka learns it. It's a 2 SP skill which does higher damage than a normal attack.
Combined with Undine, this attack becomes significantly more powerful, and cancels Luka out of his Serene Mind state. At Undine Level 3, Luka is not cancelled out of his Serene Mind state, and simply does more damage with her power used.
Alice teaches Luka this skill after he obtains Salamander