There are several ways of doing this.

You can make the changes directly in the database, but I wouldn't recommend that unless you really know what you're doings.

You could export all your products using Easy Populate. Drop your products. Re-arrange your category structure in the export spreadsheet and then re-import it.

Or you could create your new sub category for the products somewhere else. Move your products to it using the "m" buttons in the categories/products page in the Admin and then once the original category is empty, move the new category (now containing the products) into it. You're then free to create move sub categories at the same level.