I don’t think it’s clear cut. Ultimately, it’s her parents who have caused the situation, given that neither are able/allowed to care for her (assuming both are alive)- your sister is not responsible for that situation.
I think being in the care system is not a great place for any child or young person, and I can see why you would want to keep your niece within the family and out of care, if at all possible. I have huge sympathy with that perspective and I think would probably be the best thing for your niece- assuming the family she is placed with are in the position to care for her. Not just financially/space-wise, but also practically and emotionally. If they aren’t…. Well, it might not be a particularly great environment for her either.
I also don’t know that you are being fair re your sisters reasons for not wanting to keep her long-term. It could be because of holidays and going out, and if that is accurate it does seem like a very shallow/selfish reason not to help her niece. But perhaps that is your perception of her reasons, and things are actually more nuanced? Perhaps your neice is not as easy as you think, or there is something happening in your sisters life that you aren't aware of, for instance. Maybe her partner and/or other family members are against it, and she doesn’t feel able to force it through? Perhaps she genuinely does not feel able to look after your niece long-term for some reason? If she really feels that she cannot cope, it is better for all involved for your sister to be honest with social services from the outset, rather than changing the goalposts.
Being genuinely honest with myself, I would not be in a position to take on my siblings children right now if anything happened to their parents- despite having the physical space and financial resources to do so. I have no idea how I’d work it around work and current family commitments without a detrimental impact on me, my family and my career. I also just don’t want to go back to having younger children, which i recognise is absolutely selfish- but when am I allowed to be selfish and put my needs first?