Btw I have a foster daughter who’s 12yrs old and her lies are more serious and has led to police investigations and charges. Yet, I try not to respond in anger and also believe that truth will prevail in the end.

I’m glad you talk about ‘tales’ and not lies’.
Personally I wouldn’t approach this in a punitive or angry way. I would talk with my child instead and assure her she doesn’t need to make up stories in order to be interesting or special and reassure her that she is special for who she is. Use it in a way to connect with her.

It might be a confidence issue. Maybe she feels she needs to make up or embellish stories to in order for people to like her.
I remember doing this as a child, the kids around me seemed to always do more exciting things, so I would make up stories to fit in with everyone else.
My Mum sat me down and explained to me that I didn’t need to make things up to be liked, and that my true friends would like me for who I am.

I’ve not experienced this. For older children making up stories is often to get out of a punishment! And at younger ages it can be intelligence and exploring imagination, when reality/fantasy lines are still being worked out. But for the older child who isn’t avoiding punishment I think it can be a sign that they want to be popular, need confidence built, or want to be good at something and are competing with peers to come out on top (eg making up most elaborate holiday story). Don’t know if any of that might apply but whatever the cause the advice is to let them know,in private, that there can be disastrous consequences of telling tales like that, bragging about things that are untrue (if nothing else it is going to make other children feel jealous or left out and might impact friendships).

https://consumer.healthday.com/encyclopedia/children-s-health-10/child-development-news-124/lying-ages-6-to-12-645684.html

Maybe explain to her the story of the boy who cried wolf.. It is really that if something bad was to ever happen and she told a trusted person, That they would never belive the story.. That telling tales is a bad way to make friends that they can loose trust in a person who tells stories..
Maybe encourage her mind and tell her to write her stores in a book. But not to tell them as if they happen in real life.. But make sure you go out of your way to read them if she does.. even make them into a little book.

Signs of a very creative mind lol. But very testing just the same. I guess,naps she’s not bring mean, nasty or vindictive it’s not really a massive problem. And the stories are so far fetched, you guys can easily pick it. Hopefully she’ll grow out of it