The attack occurred at the girls' home Tuesday morning in the suburb of Mundelein, a village about 40 miles northwest of downtown Chicago.
Mundelein police said the older girl attacked her younger sibling, slashing and cutting her more than 30 times, because she said she felt unappreciated.
It's "heartbreaking beyond understanding," said Mundelein Mayor Steve Lentz.
Neither the victim or the suspect have been identified because of their ages.
The suspect called police around 8:30 a.m., shortly after the attack, saying a girl had been stabbed. Police arrived to find the victim on a bedroom floor, and a small kitchen knife believed to be the murder weapon nearby.
She initially blamed the attack on an intruder, but later confessed.
Mundelein Police Chief Eric Guenther said the girls were alone at the time of the murder.
The suspect is being held in custody at the Lake County juvenile detention center and appeared in court with her mother Wednesday.
State's Attorney Mike Nerheim said authorities were considering transferring the case to adult court, a decision that could take several weeks.