Option 3: Remove current pb, battens & insulation. Mechanical fix the insulated plasterboard to the original block wall (I'm guessing this is bare, unplastered blockwork?). Use thermally broken fixings. Next neatly apply air tight tape to all junctions of the insulated board to other building elements (floors, window/door reveals, ceilings. If the floors are (suspended) timber floors, airtighten these also with lapped and taped air tight membrane. Skim pb, add skirting and decorate.
(Note: the above suggestion assumes a fair bit and some variations may be appropriate depending)