The cellar in the northern part of the Village of Lu is locked, and its key is hidden far from the entrance. To obtain it, players must first progress through the area's main quest until the village is unsealed and the smuggler's tunnel becomes accessible.
Inside the tunnel, players need to reach the central room and collect the Tunnel Cage Key. It is located at the top of a short set of stairs. After picking it up, continue through the tunnel beyond the red door, where a man is being held in a cell.
Use the Tunnel Cage Key to open the cell, then speak with the prisoner. He explains that he could not open the cage door himself and gives the Village of Lu Cellar Key in thanks for freeing him.
Once the key is obtained, use the crane bell in the tunnel's central hall to fast-travel back to the Village of Lu cellar. Unlock the door to access the rewards inside.
Sources: PCGamesN.