India characterised as "absurd and motivated" an accusation by Canada that it was involved in the murder of a Sikh separatist leader, urging the country instead to take legal action against anti-Indian elements operating from its soil.
The dispute deals a further blow to diplomatic ties, with New Delhi unhappy over Sikh separatist activity in Canada, and now threatens trade ties, with talks on a proposed trade deal frozen.
Canada was "actively pursuing credible allegations" linking Indian government agents to the murder of Sikh separatist leader Hardeep Singh Nijjar, Prime Minister Justin Trudeau told the House of Commons on Monday.
Nijjar, who was shot dead outside a Sikh temple in June, had been designated a "terrorist" by India in July 2020, following his support for a Sikh homeland in the form of an independent state of Khalistan.
"Allegations of the government of India's involvement in any act of violence in Canada are absurd and motivated," its foreign ministry said on Tuesday.
Similar accusations made by Trudeau to Prime Minister Narendra Modi had been "completely rejected", it added in a statement.
"We urge the government of Canada to take prompt and effective legal action against all anti-India elements operating from their soil," the ministry said.
Such "unsubstantiated allegations" sought to shift the focus away from "Khalistani terrorists and extremists who have been provided shelter in Canada", it added.
Canada also expelled India's top intelligence agent in the country on Monday.
Trudeau said he had raised the issue of the murder directly with Modi on the sidelines of last week's G20 summit in New Delhi, and urged his government to co-operate with Canada to resolve it.
Modi, in turn, conveyed strong concern to Trudeau over recent demonstrations in Canada by Sikhs calling for an independent state.
Canada has the largest population of Sikhs outside the Indian state of Punjab, with about 770,000 people reporting Sikhism as their religion in the 2021 census.
Khalistan is an independent Sikh state whose creation has been sought for decades.