Politely, without giving reasons why you don't want to be with her personally - i.e no reasons like "I don't like you", "You're nose is too big", "you're too short" etc... Try the "you're a great...
Her body language, if she awaits to see you or says hi more often and the hugs last longer, that means shes attracted to you but, will not pop the question because of moral standard's. The girls that...
"Sorry. I am not interested but we could still be friends." i am a girl , but i would just be honsty with her say " sorry i don't feel like dating right now