This employee apparently does not appreciate having you around, and when you tell her that you do not appreciate her behavior, she does not care. She sees her knowledge as a source of power, and she enjoys being able to flex it in your face, especially if there is an audience.
Since she ignored your gentle feedback, you need to move to a stronger back-up style. You should write-up the incident, meet with her, describe the specific inappropriate behavior, let her know the consequences if it continues, have her sign the write-up, and then let her know that it is going in her file.
She may have a good deal of local knowledge, but her knowledge is minimal when it comes to dealing with you on a fair and professional basis. You are giving her an opportunity to turn all of this around, but if she refuses to do so, she may have to take her local knowledge elsewhere.
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