Search other threads. I'd pull off the furring strips, attach foam board (2") directly to basement wall, then frame using 2 sets of furring strips (horizontal, then vertical for attaching Sheetrock or paneling) or a 2x4 wall in front of foam board. You could further insulate with standard fiberglass insulation (unfaced) or spray foam, but likely unnecessary if below grade.
Note that foam will need to be covered with fire rated material; unlikely to be met with just wood paneling.
Note that foam will need to be covered with fire rated material; unlikely to be met with just wood paneling.