Sauron had the power to imprison an evil spirit within the body of a beast, and used this power to create his werewolves.
This is confirmed in The Silmarillion, with an account of '...werewolves, fell beasts inhabited by dreadful spirits that [Sauron] had imprisoned in their bodies.' (Quenta Silmarillion 19, Of Beren and Lúthien). |