This is a tricky situation, and sadly one there is no easy answer for. I've been where you are.
There are two problems with moving up, and we encountered both of them. Firstly, most primary schools cannot go beyond the primary curriculum. Teachers just do not have the knowledge, ability, or permission to teach the secondary curriculum to primary children. So we were faced with my eldest who was a high level 5 by the end of year 5 - with nowhere else for her to go. She was so incredibly bored in year 6 - and she got out of the habit of learning, so even though she scored extremely highly in her SATs, secondary school was a huge shock as she hadn't had to use her brain for a very long time. What the answer to that is I don't know, but I think I might have let her coast a bit more when she was younger - there were children who were streets behind her at 7 who had basically all caught up by 11 because the school had done all they could with her way before year 6.
My second question is, if she did go in with year 3, will she cope socially and emotionally? Now, I know she has been in with those children this year, but there has also been her own age in the class too. A class of all older children will have a very different feel to it. Only you know your child best.
A word of caution, though, my youngest, in year 4, was put into a Y5/6 class for this reason. They said that they couldn't differentiate enough in the class below because she was too far ahead of her peers. Academically she was fine there, but she was utterly, utterly miserable. Her own teacher tried to make age allowance, but supply teachers wouldn't even realise and treat her like one of the 11 year olds. The expectations in terms of maturity and independence were far too much for her.
We solved it by home educating her (a radical move, I know!). She is now very happy. But I'm not sure what the answer is for you. The minute she gets to secondary she will meet plenty of equally bright children she can bounce off of (my DD1 didn't believe this until she went and had a bit of a shock!) and it won't be an issue.
In the meantime I think I wouldn't worry too much about school, but develop loads of interests to stretch her brain outside of school. The trouble is the primary national curriculum is like a single path - bright children come to the end of it pretty soon and there's nowhere else to go. Maybe at home you can explore some branches off of that path - astronomy, music, dance, sports, nature studies - that school will never travel down. You'll also be giving her a love of learning that will enable her to fly at secondary.