iPhone Storage Full Issue with icloud

First, I recommend you reading this article, which provides very detailed information about storage and gives some advice on how to deal with poor free space: https://support.apple.com/en-us/HT201656

Then, can you please make a screenshot of Settings -> General -> iPhone Storage? In that section, you’re able to see which apps or files occupy storage on your device.

Third, the iCloud photo library is not the only storage optimizing feature that Apple has developed. In Settings, you can also enable an option which automatically removes apps you haven’t used for a while, or songs/podcasts which you haven’t played for a while. If you want, I can guide you to enable these options.

Fourth, some apps like WhatsApp apparently (in iPhone Storage) occupy not so much storage, but the app’s data is contained in “System” (at the very bottom of the Storage section), which can make out many many GBs of storage. To free some space in that section, these apps (like WhatsApp) usually offer storage freeing features, f.e. you can erase all multimedia recieved in a WhatsApp group with a single tap.

Hi raju274, iCloud Photo Library keeps all of your photos and videos in their original, high-resolution version. You can save space on your device when you turn on "Optimize Storage" (in addition to the two options you've mentioned).

On your iPhone, iPad, or iPod touch:

1. Tap Settings > [your name] > iCloud. If you’re using iOS 10.2 or earlier, tap Settings > iCloud.
2. Tap Photos.
3. Choose Optimize [device] Storage.

If you turn on Optimize Storage, iCloud Photo Library automatically manages the size of your library on your device. Your original photos and videos are stored in iCloud and space-saving versions are kept on your device. Your library is optimized only when you need space, starting with the photos and videos you access least. You can download the original photos and videos over Wi-Fi or cellular when you need them.

The pop-up refers to the iPhone storage, not to iCloud’s. The optimizing option means that photos and videos are first saved on the iPhone (1), then uploaded to iCloud (2), and a preview (which occupies little to none storage) remains on the device (3). So you’ll still need the required storage to save the photo/video (1) which are then deleted from the device. That’s why I recommended you reading the article: to free the storage the device needs to save the photo/video for step (1).

To free some “System” space (cache, temporary files etc.) you can restore your device from an iCloud backup after having erased it:

https://support.apple.com/kb/ph12521

iCloud storage do not extend (increase) your iPhone storage.

You need to delete stuff you don't need on your iPhone.