I think the layout you have currently is most appropriate, because of the tv…

You don’t have to do a sectional/ sofa with chaise. But you can if you’d like to.

You definitely need a bigger rug though.

Is the door in the living room the entrance to the home?
If it is, I might place a console table along that wall. With a mirror and some other decor items.

I’m not generally a fan of sectionals but one would work well here. Not too bulky; no chaise. Add an accent chair angled toward it, on a swivel so it can face TV. You have a nice floor and pretty gray-blue walls but the green accent wall is too bright. Paint it the same color as rest of room. Can you find a cabinet maker to make doors for those open shelves? Nothing on them is worth displaying.