I'm thankful you are concerned about this; the patterns of behavior we practice in our early years often stay with us the rest of our lives. This is one reason why the Bible says, "Train a child in the way he should go, and when he is old he will not turn from it" (Proverbs 22:6).
How should you react when your son lies? First, let him know it displeases you and it displeases you because it's wrong. Let him know also that it displeases you because you love him, and he only hurts himself when he tells lies. Although he is still young, he needs to realize that others won't be his friend if they think he can't be trusted. Don't be harsh in your discipline but he needs to know there will be consequences if he lies.
In addition, I can't help but wonder why he has this problem. Is it possible (for example) that he feels his brother gets more attention than he does, and this is a way of gaining your attention? This may not be the answer but even the mind of a 7-year-old is complex, and his lying may be a symptom of some deeper issue.
Most of all, encourage your sons to make Jesus the foundation of their lives. God loves them, and Jesus wants to be their friend and guide. The same is true for you. Put Christ at the center of your family, and problems like this will begin to fade.