Gossip is a poisonous pursuit. You do not deserve to be talked about behind your back by this nasty co-worker.
One of the important lessons here is to understand why people gossip. Those who engage in malicious gossip are people who are not starring in their own lives. They are generally miserable individuals who don't have true friends. They attempt to assuage their negative feelings about themselves by turning their focus toward others. Often they choose people who have something they want-- close relationships, integrity, happiness, enjoyable lives.
Although it helps to understand why individuals engage in this very inappropriate behavior, nonetheless, it is painful to know you are the subject of such conversation. The good news is, you have already figured out the right thing to do. The choice to be assertive is always possible, even with people who have been aggressive with you. You must confront this person and let her know you are aware of what she is saying about you, and you are disappointed in her behavior.
What comes next is almost irrelevant. You mentioned she denies your accusations. All that proves is what you already suspected: She has no integrity when she uses her words to destroy rather than create harmony and goodness. The important take-away here is, just because the gossip doesn't own up to her actions, does not mean she didn't do it, and your confrontation is no less impactful. You know she uses her voice for ill-will. Others know as well, and you probably are not the only person the gossip has talked about.
Going forward, you must continue to behave appropriately (assertive, not aggressive) because you owe yourself the right to feel happy and at peace. When we treat others well by being impeccable with our word, they are not the only beneficiaries. You feel great, so it's a gift you give to yourself as well.
There is a book I highly recommend on this subject: The title is The Four Agreements. I had the pleasure of meeting the author, Don Miguel Ruiz and his teachings are worth reading.