A religious school certainly has the right to decide what sports if any it will make coed. Period.
It may also be the case that the league rules dictate playing time. This could easily affect the decision. My daughter played a couple of seasons of CYO basketball when her elementary and middle school could scrape up enough girls to field a team. In her league, every player had to play a minimum number of minutes (iirc, at least a quarter). A rule like that could be a factor, depending on whether or not this girl is good enough to hang with the guys. (In middle school, she just might.) More information is needed.
That said, I am very familiar with situations in club soccer where a few of the more athletic girls play successfully on the boys teams through middle school and into their high school years. If a girl can play up, I'm not opposed to letting her do it on a case-by-case basis, especially if there is no girls' team and she'd be out of the sport otherwise. By the same token, I have no problem with a precocious athlete playing up a year (or two) in age if they're good enough. (My daughter's team had been riddled by graduation by the time they reached U18, and they were always trying to get U16's and U17's to guest.) The consideration should always be what's best for the athlete.
A number of posters on this thread seem to be conflating this situation with the current gender bender issue. That is not the case at all. This is just a girl who had been happily playing on a girls' team. That team was dropped. If she's in 7th or 8th grade, she probably doesn't want to change schools and leave all her friends. I don't see a problem with accommodating her on the boys team provided that she is good enough to hold her own.