Nothing is really wrong. People have different ways of showing affection. Some people are really open about it, and are just the kind of person who likes to be close and friendly with everyone. This can be misinterpreted as flirting, and it can make people with bigger personal bubbles feel uncomfortable. I know I'm the kind of person where it's just part of my personality to be really friendly with other people. Next time she asks, you could say something like "Nothing personal but I don't really know you well enough." or just be honest and tell her that she's invading your personal bubble. (At least that's what I'd do, and I'm sure people have said to me now and again)
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