Although he starts off as just another agent, Smith becomes much more.

It is only when Neo defeats him (defeats the law) that Smith becomes “unplugged” and “free”. He becomes far more powerful than the other agents, and outside of the direct control of the Matrix. He can also rally anyone into his ranks. A law unto himself.

He is the system’s extreme reaction to an extreme situation, with only one goal, destruction of the enemy. ie. martial law.