In subḥānahu, subḥāna is an accusative verbal noun expressing glorification, with an understood governing verb. The attached pronoun -hu refers to Allah and forms a genitive relation in the iḍāfah construction.
The expression is not an ordinary adjective or circumstantial modifier of either surrounding clause. If it is removed, the underlying contrast remains intelligible, but the immediate assertion of Allah’s transcendence—central to the rhetoric of this passage—disappears.