This is lathe and plaster.

Option 1 - Cut out a square area of plaster. Keep the strapping, and slap a 1/2" piece of drywall in there. Tape and mud the seems, then paint.

Option 2 - Trim the edges so they are clean, then re-apply plaster.

Option 3 - demolish the entire wall, and just hang new drywall off the existing studs. You may put in new bracing while you're at it.