It is completely normal and is only a problem to the extent you think a seven year old can get 'caught' doing something quite natural.
Obviously sex and sexuality is one of the most wounded parts of the human being in our society. We are very damaged around it. Sexual guilt, shame, self-attack, repression of natural feelings are all major health risks. They are so common we think it is normal to be so hurt in these areas. So, as best you can, instead of passing on the problem, I would take as light-hearted a view as possible of this. I appreciate it may be a stretch for you not to worry about it. We all have shed loads of sexual energy.
As society asks us to feel funny about our unfolding awareness of it as we develop, to judge it as bad or dangerous, we push all that energy down. Guess what? It gets acted out all over the place in a quadrillion dollar porn industry. This is the price we pay. So, as best you can explore your own sexual history, your own hang ups and places of pain, have compassion for yourself, for your needs and feelings. Be gentle about it. For your children it is important for you to know that sexual energy becomes completely safe to the extent that the bonding between the mum and dad, partners, parents, carers or guardians, is good. This is quite a big subject so if anyone wants to know more do email me about it. We will only not trust our children where we do not trust ourselves.
Do not worry! This is normal. Do not show annoyance or any other emotion if your child knows that she has been caught. "Say something like 'why would you bother - there are other more interesting things to do"? "you'll grow out of it' Dismiss it with laughter - expressing the emotion of why would you bother and no other display or view. However, be aware that in some instances this may evolve usual with children she knows well and with children she gets an opportunity to do things such as sleep over and share beds to sexual touching - however, generally that is at an older stage past ten years. Again the response is 'why would you bother'. Some researchers say that this type of behaviour is stronlgy based between same sexes - they do not know why. Remeber, at all times - to dismiss it as nothing - any other emotion will be picked up on. It DOES not mean your child will engage in early sexual intercourse - or become a wayward girl at 12 - that depends on the parenting that ocurrs between then and now. All this is - really it is exploring the world - as a doctor friend of mine commented when his son went on a similar journey 'just disovered they've got one'
Good Luck
