Your daughter sounds immaculately behaved, well balanced and polite. Quite an achievement for someone abandoned by her own mother - so well done to you for forging that bond and nurturing her. However she will carry deep emotional trauma from this, she will be emotionally vulnerable even if you can’t see it on the outside. She will always need you to have her back even when she makes a mistake.
She needs support and compassion not some rocket fuelled aggression, escalating rage, banishment, disrespect, scapegoating and animosity from some “selfish and nasty” woman for 5 long months with no end in sight.
She broke a rule came back to face the consequences and her responsibilities, then talked it through and apologised.
I get the house rule - but were the house consequences / punishments for breaking this rule ever agreed by BOTH of you? Why does this vile woman get to dictate punishments unilaterally to YOUR child?
You know that your DP is out of order. She is wielding power over you all with her indecision / her rage - you all have to walk on eggshells and wait til she declares peace? In the mean time you are seeing your DD “less and less”. It is not in your DP interests to resolve this as she is getting what she wants - driving your DD out of her own home.
Don’t bother trying to work out your DP - there is masses of evidence to show she is unhinged / abusive / NPD (traits at least). Concentrate your efforts back on your DDs - try to understand the damage such a person will have done to these vulnerable girls over their teenage years, and look to put it right. Google daughters of Narc mothers.
You are not “stuck in the middle” it is clear to all including your lovely DD what is going on - listen to them, ask them how she makes them FEEL - if it is less than loved, cherished, supported - get rid. Your girls do not need to be the recipient of this toxic woman’s moods and rages.
Why are you hanging about waiting for her to decide when your relationship is over.
Take back the power - do it for your girls - SHOW them that they are your priority.