So if you are in Australia, you are only mid-way through the school year, right? I was thinking July finish which would have changed my advice. Does she have 18 months left at this primary?
Are there multiple classes in her year group? Can the other girl be moved to another class? I think the school needs to be doing more.
I had similar troubles not with my own child but when I worked as a nanny. The little girl I looked after was absolutely hounded by one of her classmates. It was slightly different I think as when he didn't get the positive attention he was after he would get violent towards this little girl. The school moved him to mornings only and he had a separate playtime from the little girl I looked after. The other pupils were taught a technique which basically amounted to " grey rock -ing" him. Following a strangulation attempt he was excluded for 2 weeks. This was a rural state school (the only one nearby) and he had already been "encouraged to move" from his state primary in his last area. He wasn't expelled -mostly because there was nowhere else to go- but the school had 1-1 for him and he was never alone with other pupils. I will say though that his parents were involved and supported the actions (i.e. half-days). However, there are still behavioural management strategies that your DD's school could employ. Their play needs to be more supervised to start with.
Unfortunately, ultimately in my our case, with the violence the damage had been done to my charge's confidence and love of her school. Although the rural primary successfully managed him to the point he could not attack her or harass his classmates she was scared to be there due to his prior actions. Fortunately she had well off parents and the nearby girls' private school was opening a junior division. She moved and he couldn't follow. I appreciate that the same can't happen with your daughter as her classmate is also a girl.
Is the private secondary selective? There might be a chance that your DD's classmate is not accepted. As it has 800+ students I think it would be ok there, with the girls in separate classes and the school aware of the difficulties. Although I would also encourage you to have a look at other secondary options just in case, my biggest concern would be for the last stretch of primary.
It's not fair that your DD should be the one to move as it is her school and she seem to have been happy there apart from this other girl. However if there is no action being taken it may be in her best interests. Anxiety to the point of illness and talking of suicide is not acceptable. Does the future secondary have a junior section or even a feeder primary? Do other secondaries around you have a junior division? That way it could be simply moving to her new school early. Hopefully in the next year and a bit, even if the other girl goes to the same secondary, the other girl would have moved on from her obsession. Have you asked your DD if she wants to move schools? Her answer might be helpful there.
To be honest if I was your daughter being put in counselling about boundary setting would annoy me greatly - she is not the one who is the problem and there is fuck all she can actually do if this other girl is in her class and allowed by adults to be with her at breaks. She can set all the boundaries she likes but without adult intervention this other girls will run roughshod over them. Pardon my language. I don't mean to say it's a bad thing in the long run, she will need those skills as she gets older, but as a child in this situation it is almost useless unless the other girl is trained on respecting boundaries and has this enforced by a teacher. Even as an adult you are sometimes taught that the best option is to walk away, leave the area entirely and end any communication - well a little girl in primary school can't do this.
I would also gently say to be mindful of your own actions. You wrote that:
DD1 wasn't especially keen on us doing this but I persuaded her to do it out of kindness. Unfortunately, the girl seems to have concluded that since she had a weekly playdate with DD1 last year, DD1 must be her best friend. I feel terrible that my do-gooding has backfired so badly on my daughter.
Now you could never have foreseen the extent of the outcome of this and you were helping a friend. So I don't think you should feel guilty. But your DD signalled that she wasn't keen and you pushed her into it out of 'kindness'. This is the opposite of health boundary setting. I see this happen a lot on MN and real life. A common recurrence is inviting bullies to birthday parties. Or that picture that went round saying everyone is concerned about their kids' results but not whether they talk to the kid sitting all alone. Well, frankly, sometimes there is a reason that kid is all alone! If they are the new kid or their friends are home sick or whatever, yes, be kind! If it is a child who harasses you and has no one to sit with because of their behaviour this may end in disaster like my poor charge being strangled in a playground.
If your DD is signalling she in uncomfortable with being forced into certain social interactions, I would say back off in the future. It definitely won't help her set boundaries if you overrule them. I see kindness championed all the time and kindness is wonderful but sometimes when people say "be kind" what they really mean is "be quiet and accept this." One time my mother invited the neighbour's son on holiday with us out of kindness - except he was absolutely obsessed with me and had repeatedly asked me out for months (and she knew this!). It was terrible and really fuelled his behaviour. She wanted to be kind to him as his parents were in the middle of an acrimonious divorce but it wasn't kind to me.
At the end of the day it sounds like you are trying your best and want the best for your daughter. You need to be her champion. This other child's behaviour has caused your DD severe anxiety - either these two girls need to be entirely separated by the school or by changing schools, in my opinion. It is too far gone for their relationship as friends or classmates to be mended. And keep them separate outside of school - no playdates, no popping over, no emergency childcare for this other family. DD is your number 1 priority.
I do want to say I know how awful it is to watch. I was only the nanny not the parent but it was really hard to see. I really wish you all the best.