How can I expand already built rooms?

If I build foundations connecting to the existing room and remove the partitioning wall, the space where the division-wall was is "outside".

This is a bug (link leads to internal bugtracker), due to a missing check for the space where the wall used to be.

Quoting from the bug report, there is a workaround:

1. Make building foundation.
2. Make another building foundation adjacent to it
3. This will, correctly, remove one of the otherwise double walls.
4. Use foundation demolish to remove the interior wall.
5. Leaves unusable outside area inside.

The work-around is to replace step 4 with:
4. Build concrete floor material along length of inside wall, which correctly labels the area as interior.