I just updated to Android O Preview and installed a few PWAs. On the home screen a miniature Chrome logo is placed by the icon. This wasn't there before the OS update.
Ideally, I would like the PWA to look like a regular app on the home screen considering it has service workers enabled.
Is it possible to remove this with some settings in the app.yaml or manifest.json?
Above answer is not accurate except for the part that Chrome had the issue of adding Chrome badge to App icon, which is changed in the following updates.
Before getting into whats wrong, here is how web apps are added to home screen.
1) As a simple shortcut(like a bookmark), when the users web browser don't have service worker support(which all recent versions of major browsers have support now), targeted web URL don't have a valid manifest.json and service worker files configured(this can be validated in Application-> Manifest and Service worker tabs in chrome developer tools). In this case, what is added to home screen is not an APK and the bookmark kind of shortcut was represented by a specific version of Chrome with a badge.
2) As an installed APK: When the targeted URL have a valid Manifest.json, service workers and one of supported Chrome version is used, Chrome for Android uses WebAPK to build and sign an .APK file with the package name starting "org.chromium.webapk". Read here for more details on apk generation and PWA distribution here.
Whats not accurate in the above answer/linked article,
1) The chrome badge is not a security measure. Chrome team added the badge for web apps created as bookmark/URL shortcut as it was not using WebApk in some particular version. Badge is a simple visual representation which was later withdrawn.
2) PWA is not abandoned in favor of WebApk. WebApk is part of PWA solution, which compliments PWA by building an installable APK file to get the native app like behavior. WebApk is used to build .apk files by Chrome for Android. Here is official read me file.
So if you are building a PWA, you can still be assured you are not left behind in outdated/abandoned/being abandoned technology. Its still a constantly progressing positively, which got iOS support for service worker in march-2018(iOS 11.3), making it the last major browser vendor aboard PWA game.