This was a quick little sex scene the makers of this anime added to the home video versions of Elf ban Kakyuusei.
I didn’t know this until just now, but apparently the Elf ban Kakyuusei OVA series (made in 1997) is part of the same franchise as Kakyuusei (in 1999) and Kakyuusei 2 (in 2004), the latter being ARMS debut into anime after making their start as a hentai company.
Kakyuusei 2 had nudity on DVD, and I think I spotted at least one sneaky nipple sighting in the 1999 season as well. The original 1997 OVA was actually non-nude and completely innocent for the most part, but on laserdisk and VHS they included an extra scene at the end of the final episode. A sex scene with nudity and disturbingly serious music. Anime was so different back then.
This video covers that scene in abridged format.
If I ever get around to making that Kakyuusei video in the future I’ll probably re-include this scene to keep the series together.