I would ignore, first of all (which is what I did with my sister when, via a text message, she asked to borrow $300 from me -- a paltry amount, I'm sure, compared to what it sounds like you received, but an out-of-the-blue request and, since I didn't know how to respond, I didn't, and she never brought it up again in any form of communication). If she brings it up directly, then, as others have stated, tell her it won't be possible. If she badgers you for it, cut her off until she stops asking for money. Don't give her any reasons other than "It's not possible" so she can't try to argue you out of it (besides, why doesn't she help her own son buy a house???).
ETA -- I don't really see a way of not ending up with a rift without giving her what she wants (I don't say "cause" because you wouldn't be the one causing it). You just have to determine what is more important -- allowing her to take money you don't have for her son or proceed as planned and let her sulk about it.
2nd edit -- Just read your Christmas post. Given your sister is well off, she definitely can help her own son buy a house. I really don't think it's possible to say no without a rift occurring so you may need to point out to her, "You have a lot of money and certainly have never been expected, nor offered, to give me any nor provide for my family so there is absolutely no reason why I should be providing for you and yours." However, she'll likely try to argue you down so "It's not possible; bean dip?" repeated ad infinitum might have to be the response.