UPDATE: LG service center failed to fix the proximity sensor saying that I need to replace the board (fools).
I had to take matters into my own hands. After disassembly, I tested around with the sensor and noticed that when I loosened the screw over the sensor (top right from the back), the sensor worked. So apparently the problem is that the sensor should not be touching the glass (at least that's what I concluded. Basically what I did is cut a tiny peace of rubber and placed it at the bottom between the sensors and the glass (to prevent them from touching the glass). It's working perfectly now
Took me around 3 hours of trial and error as the space is tiny so you need just the right size to make it work.
if the sensor isn't actually defective, it's worth getting it fixed as we did rather than disable it.
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