This. My 2.5 y.o. still argues with me that a small dog she just saw in the park is a "cat". That's in contrast to her older sister, who at 5 is... begrudgingly accepting that I might be right about it after the third time I correct her.
The thing is that the labels "cat" and "dog" reflect a choice in most languages to name animals based on species, which manifests in certain physical/behavioral attributes. Children need to learn by observation/teaching and generalization that these are the characteristics they need to use to conform to our chosen labelling/distinction, and that other things such as size/color/speed are irrelevant.
Of course it didn't have to be this way - in a different language animals might be named based on size or abilities/behavior, etc.
So, your daughter wanting to label a cat-sized dog as a cat is just a reflection of her not having aligned her generalization of what you are talking about when you say "cat" vs "dog" with her own.
