We improve the recently developed functional renormalization group (fRG) for impurities and boundaries in Luttinger liquids by including renormalization of the two-particle interaction, in addition to renormalization of the impurity potential. Explicit flow equations are derived for spinless lattice fermions with nearest-neighbor interaction at zero temperature, and a fast algorithm for solving these equations for very large systems is presented. We compute spectral properties of single-particle excitations, and the oscillations in the density profile induced by impurities or boundaries for chains with up to 10(6) lattice sites. The expected asymptotic power laws at low energy or long distance are fully captured by the fRG. Results on the relevant energy scales and crossover phenomena at intermediate scales are also obtained. A comparison with numerical density matrix renormalization results for systems with up to 1000 sites shows that the fRG with the inclusion of vertex renormalization is remarkably accurate even for intermediate interaction strengths.
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