Thank you all.

heather, you are right, my self esteem level definitely impacts how I handle the situation. Right now Im working on mindset a lot, and before this current hiccup came along I was doing well, but Im getting back on track.

Little_O, I have tried talking to the person, but more lies just seem to spew out and then she blames everything on me. So in the end I just gave up, and stopped trying to work out what the problem was.

BG, thank you A lot of what you have said has resonated with me. And you are right.

Last saturday night I had this nightmare. I was at home and there was this bull racing through my house. It was massive, its horns were super sharp and it was trying to attack me. Anyhow, it kept charging at me, and I kept pushing it away but it kept charging.
So when I woke up the only thing that came to mind was the idea that I have take charge and 'grab the bull by the horns' and own the situation.
Im coming to the realisation that for me, people telling lies about me, are people trying to take the power away from me. I wasnt in control, and thankfully I wasnt comfortable being in that position.
So I got up, had my morning coffee and brekky. Then I sent a text message to the person who causing all the trouble at the moment. Firstly I thanked them. Then I explained that I had realised that their problems with our friendship is just that, theirs. Otherwise she wouldnt feel the need to fabricate lies in order to end the friendship. Then I thanked her again.
I feel like I have taken my power back because I have called her out on what she is saying. I thanked her, because now I realise that what has happened hasnt been about me, but her, and I need to thank her for that, I didnt want to spend another minute of my life wondering what I had done to cause the end of a friendship. And I was able to stand up for myself and inform her that I am not going to turn a lie into a truth.
I have no idea if this is the long term answer to my original question but its a start. I think its about taking the power back, but not stepping into their shoes and treating them the same way they treated you.