INSTALL_FAILED_INSUFFICIENT_STORAGE error while running Android Application on Emulator is due to virtual memory size defined is less.
We can increase the Virtual memory size by running the following command from location android-sdk\tools ( from Terminal if on Mac OSX or Command Prompt if on Windows)
Replace emulator_name with your Emulator Device name.
emulator -avd "emulator_name" -partition-size 1024
After running this command start the emulator and install the APK on the device. You will now not face this error!
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