We study SU(N) Yang-Mills-Chern-Simons theory in the presence of defects that shift the Chern-Simons level from a holographic point of view by embedding the system in string theory. The model is a D3-D7 system in Type IIB string theory, whose gravity dual is given by the AdS soliton background with probe D7 branes attaching to the AdS boundary along the defects. We holographically renormalize the free energy of the defect system with sources, from which we obtain the correlation functions for certain operators naturally associated to these defects. We find interesting phase transitions when the separation of the defects as well as the temperature are varied. We also discuss some implications for the Fractional Quantum Hall Effect and for 2-dimensional QCD.