Ouch, that's a hard one to deal with. I feel for you mate. I agree with DorianGrayism said at the start - your mate is pushing the boundaries way too much by saying things like "I love you" to your girlfriend and your girlfriend is not being very understanding given the situation. I don't see why she can't be less intimate with him; my ex used to be good friends with this guy, it never bothered me. She told me once that they both had feelings for each other at one point but not the same time. They never got together and when me and her were together, she was no more than just good friends. She wasn't very close with him though and he was certainly not as pushy as your mate.
In my mind, there's a couple of things you can do:
1. You've been very active about the situation. Try a more passive approach; just don't mention your worries, anger, frustration or your dislike of their intimacy to either your mate or your gf. A lot of the time with a few people, its just about trying to get what they can't have and especially what they're told they can't have, i.e. in the case of your mate, that would be your gf. If you don't make a big fuss over it, then the infatuation will likely wear off.
2. Although your girlfriend sounds a bit adament, she does seem like a strong lady who can deal with a tough situation. If she cares about you and has been with you for a year, theres no reason she would cheat on you, even if she has someone close. My friend (a girl) recently got dumped because her boyfriend didn't trust her over a similar issue and knowing her really well, he was just being totally unreasonable - cheating isnt something she would do. So, trust your girlfriend if she says that she only loves you.
3. Try to limit the time you spend as three people together (you, your mate and your gf). If he sees you together, holding hands, as a couple etc, itll probably just make him want her more. Instead, why not take the attention off the situation by doing something nice for your girlfriend - a nice day out, dinner etc. Show her that you're still great together.
Best of luck mate, just go for the positives, rather than worrying about something that's not happened. Its funny how the more you think about something bad, it ends up happening. Best not to think about, and focus on the good things.