Here is some of what Kathleen Raine in Golgonooza: City of Imagination, (Page 106) has to say about Blake's use of Babylon:
"In contrast with Jerusalem, mother of souls and bride of 'Jesus, the Imagination' - for the soul must be wedded to the spirit - is Babylon, city of this world. Blake's Babylon is the 'cruel' Goddess Nature - the world of generation seen as the supreme and only power. The laws of men understand men and women as no more than their mortal selves. The morality of Jerusalem is based on Imagination, immortal and boundless; Babylon knows only a moral law imposed on the natural man. Imagination can 'distinguish between the man and his present state', for men pass on while 'states' are mere stages on the way.
'Every Harlot was a Virgin once,
Nor canst thou ever change Kate into Nan.' (K 771)
"Kate and Nan are unique souls, neither harlot or virgin, which are 'states' Kate or Nan may pass through. In Babylon forgiveness has no such ground, a sinner is a sinner and incurs the punishment of the moral law which belongs to the natural order.When the spiritual vision closes, then the Moral Worm 'Brings forth Moral Virtue & the cruel virgin Babylon', an external code, 'cruel' because it can only condemn and pass judgment. Babylon is always, in Blake's prophetic mythology, called a 'virgin' because she does not receive God in a 'marriage' of love, but is self-righteous, and can only be redeemed, through reconciliation with Jerusalem, the soul, Jerusalem will 'give her into the arms of God, your Lord and Husband'. The 'virginity' of Babylon is the self-righteous moral virtue as against the love of the 'Universal Savior', the God within. Blake continually denounces the 'cruelty' of natural law, the Deism of his day and the 'selfish virtues of the natural heart'.
Babylon is the 'mother of war', the ultimate moral sanction of competing nations: where the kingdom of the Imagination unites, natural morality is self-centered and divisive. In Babylon Jerusalem's love and forgiveness is condemned, as protecting sinners, and Jerusalem becomes 'a wandering harlot in the streets', condemned to suffer in prison, or to labor 'at the mills' where the Soul has no recourse against the powers of this world."
Jerusalem, Plate 24, (E 169)
"I have turned my back upon thee into the Wastes of Moral Law: There Babylon is builded in the Waste, founded in Human desolation. O Babylon thy Watchman stands over thee in the night Thy severe judge all the day long proves thee O Babylon With provings of destruction, with giving thee thy hearts desire. But Albion is cast forth to the Potter his Children to the Builders To build Babylon because they have forsaken Jerusalem The Walls of Babylon are Souls of Men: her Gates the Groans Of Nations: her Towers are the Miseries of once happy Families. Her Streets are paved with Destruction, her Houses built with Death Her Palaces with Hell & the Grave; her Synagogues with Torments Of ever-hardening Despair squard & polishd with cruel skill" Babylon 'is the city of Vala, of Natural Religion, or Deism, the Goddess Nature.' (Damon) Babylon is the worst side of London, the oppressors and exploiters. It is the the materialists who have turned away from a Vision of the Eternal and who impede others in their search for Vision and Imagination.