Is it considered unlawful for the wife to seek a divorce in this situation, and is it permissible for the husband to insist on reclaiming everything he gave her, knowing that the wife does not observe prayer or hijab and demands freedom, while the husband wishes to uphold God's laws, not man-made laws?

A wife's request for khulʿ (divorce initiated by the wife) has three scenarios: it is permissible if it is due to the husband's bad character; it is disliked (makrooh) if the situation is stable, there is no harm, and there is a fear of falling short in rights; and it is forbidden (haram) if the wife harms her husband to compel him to grant khulʿ. As for the husband's acceptance of khulʿ, it is permissible. It is also permissible for him to request what he gave her or more, though increasing the amount is disliked. The husband must ensure his wife adheres to obedience to Allah. If she insists on disobedience and he is unable to rectify her, then separating from her is better than keeping her.