We report a theoretical study of the effects of electron correlations and structural confinement on the electronic properties and magnetic state of LaNiO3 (LNO) thin films epitaxially deposited on the
LaAlO3 (LAO) substrate. Using the DFT + U method we compute the electronic band structure, magnetic properties, and phase stability of the 1.5 unit-cell-thick NiO2-terminated LNO thin films. Our results reveal complex diversity of the electronic states caused by the effects of structural confinement, interfacial charge transfer and electronic correlations. Our calculations suggest the appearance of in-plane (110) charge disproportionation of the Ni ions in the interface NiO2 layer of the antiferromagnetically ordered LNO thin films. Moreover, the electronic states of both the antiferromagnetic and ferromagnetic LNO/LAO show a large orbital polarization of the Ni ions in the surface NiO2 layers. Our results suggest the crucial importance of oxygen defects to explain the metal-to-insulator phase transition experimentally observed in a few-unit-cell-thick LNO/LAO thin films.