Welcome! Yes, you won't be able to get any more sprockets on that 7-speed freehub body*, but you could swap to an 8/9/10-speed freehub body in the future if you wanted to. I'm pretty sure the bike should already have 135mm spacing. If it's down to 131mm, it sounds like some spacers may have gone missing at some point in the bike's life. That...or it was originally setup with 130mm spacing and it's just a hair thick now. In either case, the frame is steel and the rear triangles will bend in or out to accomodate different hub widths, within reason. You or your local bike shop could install an 8/9/10-speed freehub body on the wheel and do what might be needed to redish it to re-center it.
* one caveat to the 7-speed body accepts only a 7-speed cassette situation is the old 8-of-9-on-7 trick, where you take a 9-speed cassette, remove one sprocket (usually the largest one) and install the rest of the stack. 9-speed sprockets (and spacers) are thinner than those of 7- and 8-speed systems and 8 of those will fit on a 7-speed freehub body. You'd need to use a 9-speed shifter (or a friction shifter), and you'd have only 8 or the 9 "speeds" out of that shifter (since you have only 8 of the 9 sprockets), but it can be done and sometimes works pretty elegantly. You'd need a 9-speed chain as well. You usually don't have to change the rear derailer.