I kind of agree with the teacher that going up a class for what... reading? Literacy? English?... doesn't actually make much sense.
If she is 'gifted' in English, she will just overtake the next class up and end up being bored but out of year.
If she is just 'ahead', then in this year and next, other children will catch up (as tends to happen with reading); and also, it should be fairly easy to 'extend' and 'challenge' her within her regular year group.
So in your place I wouldn't be asking for moving her up a year for 'reading'. Instead, I would be discussing how they plan to keep her interested and engaged, and continuing to make progress.
They have already indicated how they intend to do this (the librarian thing) - so ask yourself what exactly is good/bad about that idea. Ask your daughter too! She might actually be thrilled by this idea. It might be just the thing for her - she doesn't have to pair with someone, she can do things her own way, the categorising aspect may appeal to her, and she can go as deep and wide as she likes in her 'book reviews'.
If it doesn't appeal to her - if it feels like 'busy work', just a thing to keep her occupied and quiet while the teacher works with other children, perhaps she feels she is being singled out; then by all means let the teacher know that you don't think this will work for her and ask to discuss other options.
If it does appeal, but you feel that something is missing - e.g. she needs the opportunity to discuss what she has been reading - then say exactly that: That their proposition very nicely addresses this aspect and that one, so thank you for that, but you noticed that this other aspect is being neglected, and do they have any ideas how that could be included for her?