Pokemon games generally set the stage for the Pokemon anime, but the Legendary Pokemon Lugia ended up being the exception to this rule. Not only was it designed by someone outside of Game Freak, but it was also created specifically for the anime itself.
Lugia's creator was a man by the name of Takeshi Shudo. He revealed the circumstances behind Lugia's origin in one of the many blog posts he used to write that detailed his work experiences on the Pokemon anime. These posts were recently lost and untranslated, until a Pokemon historian known as Dr. Lava came along.
According to the translations presented by Dr. Lava, Takeshi Shudo ended up with free rein over the second Pokemon movie because of how well Mewtwo Strikes Back did. Shudo penned the script to that film and did so without much supervision from The Pokemon Company. At the time, the business was too busy to look over his shoulder because it was dealing with the backlash caused by the infamous Porygon anime episode — the one that triggered seizures in kids all across Japan.
Thus, when the second movie came along, The Pokemon Company gave Shudo the same creative control over it that he had with Mewtwo Strikes Back. The only thing the company told him to include was the phrase "Explosive Birth" in the movie's title. For those confused, yes, the second Pokemon movie is called "Pokemon: The Movie 2000: The Power of One," but it's only called that internationally. In Japan, the film is simply called "Pokemon: Lugia's Explosive Birth."
Because The Pokemon Company only told Shudo to use a specific phrase in the film's title, it had no involvement in creating the second movie's Legendary Pokemon. Thus, when Shudo tackled said Pokemon's creation, he did so with the mentality that it wouldn't appear in the games at all and would only be an anime-exclusive. The only input The Pokemon Company ended up providing on "Lugia" was its name, and even then, that was decided on by a majority vote between both the game development team and the distribution staff.
As such, Shudo was surprised to see Game Freak make use of it. It must have been even more shocking to see what Lugia went on to become. The Pokemon not only headlined three games — Pokemon Silver, Pokemon Soul Silver, and Pokemon XD: Gale of Darkness — but The Pokemon Company even made it the rival of Ho-Oh, who was the headliner of, and the first Pokemon revealed for Generation 2. Lugia has received so much promotion, in fact, that he might arguably be even more popular than Ho-Oh is at this point.
Pokemon: The Movie 2000: The Power of One is available now on digital, Blue-Ray, and DVD.
Source: Dr. Lava