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Does she wear snap up jammies? Is there a metal fastener against her skin at that spot? If it isn't ringworm, it is a reaction to metal against her skin. Avoid that type of clothing.
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I would try some anti-fungal cream like you would use for athlete's foot - it's the same family of fungus. Use it until the inflammation and itching is gone. If you don't see improvement in a few days, take her to the doc