Agree with all the book suggestions -- I know this situation as my dd1 was reading chapter books in Reception, but was being sent home from school with ORT level 2 books.
Would also recommend 'Mr. Majeika' books by Humphrey Carpenter. Greek myths and legends are also good, there are various editions of varying merit in bookshops. Also nonfiction books (Dorling Kindersley are good here).
Take no notice of anything the school tell you, they're trying to make life easy for themselves by minimising the spread of reading levels in the class. I've heard from a classroom assistant that there's a deliberate policy in dd1's school of keeping back her and another good reader 'so they don't get too far ahead'. FFS!
A good reader at this age will tackle a book even without being able to read all the words in isolation; they seem to skip across the gaps using the bits they can make sense of. This should be encouraged, not discouraged on the grounds of 'It's too hard for you, dear.' If the plot is complicated, you can ease her into a new book/author by reading it to her, or by listening to a tape version. I still use this technique to get dd1 into reading something I know she'd enjoy.
You may later encounter the problem we now have, with an 8 y,o. who has read pretty much all the children's classics and contemporary authors, in that the next stage on from 8-11 fiction tends to be aimed at a teenage market and major on s*x, drugs and teenage pregnancy. Again the classics can help: we've listened to the Odyssey on tape (ds, 5yo enjoyed it too, although only listened to bits) and some Dickens.
S*d the school, and encourage her to keep going -- you and she are in for a great time!