I have passed all the verification tests and even settled all disputes with all but one seller who seems to know that. He has kept asking for more and more funds to help unlock my account even that I send it off-site.
I do not use localbitcoins but I assume such peer to peer platforms act as intermediary between traders and your verification would not depend on third parties, especially if you have satisfied all the requirements to unlock your account. Have your account had issues before now or has it been flagged before?
I also think they want to Keep the 0.2BTC balance I have in an account with them, is it legal for them to do so as they offer no justification.
If you've reached all the requirements, your account should not be limited with no valid reason.
You could open a scam accusation thread with a well detailed information about your case. Social media can also be a used to draw attention to your case.