optimize iphone storage does not work

I use Iphone 5s with ios 8.3 and macbook pro with the latest photos app.

I also have 200GB of storage in icloud.

My phones memory is full. I cant delete any pictures because if I delete it on my phone, it says it will delete it on the cloud. Optimize iphone storage is on on icloud settings, but it is not doing anything as far as I can tell, photo library still uses 763 mb of storage, I want this to be 0 as I am using icloud. I should be able to delete pictures from my photo roll (without deleting from icloud) but I could not find a way. This was done automatically with the old photo app in mac. When I import photos from my iphone, it automatically deleted the copies on my phone. It does not seem to exist anymore.

I need help