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In 'lo siento', 'lo' is a direct object pronoun. It represents what you're sorry about.
As to 'lo' being an article, it is known as the neuter definite article and is used to change an adjective into an abstract noun, or it precedes a 'que' clause to make it an abstract.
Lo importante es que prestes atención en clase.
Lo que me gusta es trabajar fuerte.
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