Niece's friends masturbating at school

Don't tell anyone, her parents, her principle or any authority figure that your niece masturbates. It will only cause embarrassment, what harm does it do? None. It's no risk and all reward, so to speak. As for her being too young, there is a study I linked below that says no, and that a lot of people by the age of 5-6 already play with their genitals. No-one needs to tell someone to do something they find enjoyable, think about how cavemen would know to reproduce when they have little thought ability and definitely no sexual education. It's innate. Sorry, that was mostly a response to 'noozy', who thinks that this is one of the signs of an apocalypse. Don't embarrass her, she trusts you enough to tell you, don't betray that and cause her problems, both now and in the future (when she next needs to open to someone).

"I am assuming Amanda is pressuring my niece to do this same". You seem to have the same kind of apocalyptic view of this whole thing, however I can understand more from the view of a parent/carer. She may not necessarily be pressuring anyone, she could be doing it frequently; causing your niece discomfort to be around her. Try and ask your niece what she means by 'constantly', and if she is doing it during school. If she is, then you can contact her parents (try and avoid getting the school involved as it will be incredibly humiliating) and tell them to talk with her about when it is appropriate. You may want to have the same talk with your niece (purely as precaution).

Link to study:
http://www.med.umich.edu/yourchild/topics/masturb.htm

You should remove her too a different school or talk too your niece and see if you can meet her friends and the parents. Then have talk about how they should really stop.

She is far to young to be doing any of this. Personally I would call the school and have a conversation about it because it raises the question of where did Amanda figure this out/start doing it.