Canadian Prime Minister Justin Trudeau said authorities were "actively pursuing credible allegations" linking New Delhi's agents to the murder of a Sikh separatist leader, an assertion India quickly dismissed as "absurd".

The spat deals a fresh blow to diplomatic ties that have been fraying for years, with New Delhi unhappy over Sikh separatist activity in Canada. It now threatens trade ties too, with talks on a proposed trade deal frozen last week.

Each nation expelled a diplomat in tat-for-tat moves, with Canada throwing out India's top intelligence agent and New Delhi responding by giving a Canadian diplomat five days to leave.

Any involvement of a foreign government in the killing of a Canadian citizen is "an unacceptable violation of our sovereignty", Trudeau told the House of Commons in an emergency statement on Monday.

He was referring to Hardeep Singh Nijjar, 45, shot dead outside a Sikh temple on June 18 in Surrey, a Vancouver suburb with a large Sikh population, three years after India had designated him as a "terrorist".

Nijjar supported creating a Sikh homeland in the form of an independent, so-called state of Khalistan in India's northern state of Punjab, the birthplace of the Sikh religion, which borders Pakistan.

India's foreign ministry did not disclose the name or rank of the Canadian diplomat it had asked to leave the country.

"The decision reflects the government of India's growing concern at the interference of Canadian diplomats in our internal matters and their involvement in anti-India activities," it said in a statement.