For reference, I also live in a very small space.

You do have a small space! I think you have done well with to your placement. I like the rug, especially with your chair. What is a bit 'off' is the sofa, but not badlly so, it's just a little lighter than the colors in yiur rug. It's might be a little too heavy for the space. If it is in scope or something you might replace in the future, it would be worth considering a sofa style with legs, to lift it off the floor and in a color from the rug... a grey perhaps or even in a jewel green like your chair. The style of your chair would work really well as a sofa - airy and not as deep as your current sofa style.
In small spaces it can be tight for storage. You currently have an open shelving unit providing some shelving, for the space to feel more spacious a closed shelving unit, so everything is not on display, might help your space. It might even be cupboards on the lower section, with open above for your drinks and frames.

Agree with Kazzh regarding sofa colour rather than rug. Can you cover it over with your darker throw or a large bedspread. I like the chair and rug they look nice in your space, it looks very cosy!

I agree with above comments. As a quick fix, I'd put the white fluffy cushion on the chair and the darker/blue cushion on the sofa (switch their positions). And remove the black throw from the sofa like that, maybe just hang it over the far arm of the sofa so it's at the back of shot.

I also agree with the above, it’s the sofa that doesn’t match the space. I love the rug and the chair, they match perfectly. Changing your sofa will make the biggest impact to the space. Go for a sofa in a muted co-ordinating colour to the chair rather than matching colour, really to take the eye automatically to the chair and as that is in a more open space, it will make the area feel bigger. Other potential suggestions is if you hung your TV on that wall (slightly higher than it is now) and go for a low level TV unit on legs with doors, it would really open your space up and make it more relaxing. If also go for shelves with storage on the bottom, it would really calm and maximise the space. There are lots of budget options in these styles so you could make a massive difference for not much money. Stick to things on legs, as that really gives the illusion of a bigger area. I have attached two random example photos of the type of storage I mean

I have a different opinion 😊 I think the rug makes the area too dark and dingy. I think a light rug would lift the whole scheme and bring the sofa in. Something like this.