I'll begin using the term emotionally immature instead of narcissism because people on here seem to have too rigid of a view of it or may not fully understand it.
It's very easy to act and appear mature when things are smooth sailing and going well. A true test of character is when things no longer are going their way, they start hearing no and not getting what they want. That's when emotionally immature people show their true colors.
For reference, if a healthy, emotionally mature parent ever found themselves estranged their reaction would primarily involve being mortified that their child felt the need to cut contact. If they feel disappointment, they feel disappointed in themselves for failing their child. If they feel anger, they won't dwell on it or give it fuel, rightfully realizing it's not a valid emotion in this situation. They would spend their time wondering where they went wrong and what they could have done differently, instead of trying to garner sympathy for the situation they found themselves in. A healthy, mature, responsible parent would care more about how their child must have felt to make such a difficult decision, instead of caring how difficult it is now for themselves to now be estranged.
If your niece claims she doesn't feel loved (by her mother), I'm very inclined to believe her. That your sister's reaction isn't just because of a life crisis, it's who she really is deep down.
Smileless asked earlier how I would treat a narcissist. I would follow the general advice she provided (disengage, etc.), while also viewing lying as a valid way of dealing with her. More importantly, I would stop offering suggestions and drop all hope that she will get better and grow as a person, because nothing short of a literal, actual miracle can change her.