There are many discussions about this topic, but there is no solution for this.
It would be great if "Create file" action for SharePoint will allow defining a content type and fields which will eventually generate a document based on a template associated with the content type.
Now it requires 'File content' which is actually not a creating but rather copying action.
Doesn't allow expression values....unless I'm missing something. URL changes at runtime for us.
I've been able to use Create File using a Content Type, as well as an existing document to create a document in a Document Set. There is a difference though. When using an existing document the Properties that have been set (some are default values in the original Content Type) are transferred to the new file. But when doing the same from the original Content Type, none of the default values from the Properties are transferred. Looks like you have to set them explicity with Update File Properties. My instinct is to use the original Content Type and suffer the extra Flow work to make sure I am using the correct document.
This functionality is already there. Pelase follow below steps.
Step1 : Use copy file action in your power automate.
Step2: locate the template location from your content type folder in your library. PS: This folder is default hidden, but you can see it in flow.
Step3: Add action for update file properties.
Step4: test it.