I guess too the biggest worry is that because of her age that if she does it often, she may give herself a sore vulva and possibly even introduce infection, just because little kids don't always have the cleanest hands kwim? In all likelyhood she will grow out of it like Sushee said.
Well she only does it in the bath at the moment so at least I know she's clean, though she wont let me cut her nails so she could scratch herself. She wears a nappy all the time except when going from the bedroom to the bathroom for her bath at the moment, but when she starts toilet training things will be different, though she should be old enough to start understanding when it's ok and when it's not ok to touch herself.

Here is the article:

Why it happens

Toddlers masturbate for the same reason that older children do: it feels nice! Bodily exploration is part of growing up. During the toddler years, your child will learn to run, jump, throw, draw and (hopefully!) poo in a potty. She may be just as curious about her genitals as she is about her fingers, toes, and belly button -- and if she's recently switched from nappies to pants, she may be able to get to them for the first time. When many parents first see this kind of exploration, they wonder, "Is this normal?" The answer most experts give is, yes, you don't need to be concerned.

What to do

Don't panic. Not every child does it, but masturbation is a completely normal thing to do. It doesn't cause any physical harm, pose any health risks and, no, it won't turn your child into a sex maniac, either. Masturbation in toddlers isn't sexual (as it is for adults) because toddlers don't know what sex is. And while, in older children, explicit sex play can be a warning sign of sexual abuse or exposure to explicit sexual material, this is extremely unlikely to be the case with toddlers. (A toddler who's been sexually abused is more likely to become withdrawn or suddenly have trouble sleeping.) That said, toddlers masturbate because it feels good, and the good feelings can be as pleasurable for her as they are for adults. A toddler may even masturbate herself to orgasm complete with panting, red face, and a big sigh at the end. But it's absolutely not something to be worried about.

Ignore it. You may have already told your toddler that some of her parts are private, and that no one but her, or her parents or a doctor, gets to touch them. But it may not sink in for your toddler as the concept of privacy means nothing to an under three. Your best bet is to look the other way or immerse yourself in a distracting activity.

Distract her. Even knowing it's normal, even knowing lots of children do it, you'll probably be embarrassed if your toddler starts masturbating in front of other people. If you can't ignore it or laugh it off, distraction is your best bet. Masturbation is a lot like nose-picking -- children do it because it's there, because they're bored, and because their hands are free. If your toddler's hands stray toward her crotch at inopportune moments (in front of your in-laws, for example) keep a toy or other substitute handy to hand her, instead. Invite her to do a puzzle, or play with blocks, or toss a ball around -- anything that keeps her hands out of her pants.

Watch your own reactions. Parents' reactions to masturbation pose the greatest risk for kids. If your toddler is made to feel guilty for exploring her body, or made to feel that what she's doing is dirty or naughty, she may associate sexual or pleasurable feelings with guilt and shame later in life.