Mr Trudeau told the Canadian parliament on Monday that the Indian government could be behind the death of Hardeep Singh Nijjar, who was killed on 18 June in the parking lot of a gurudwara in Surry, British Columbia.
A top Indian diplomat, who was the head of the country’s intelligence agency, has also been expelled as a consequence, Canadian foreign minister Mélanie Joly said.
The Canadian prime minister said he had raised the killing with his Indian counterpart Narendra Modi “personally and directly” during the G20 summit in September.
“Any involvement of a foreign government in the killing of a Canadian citizen on Canadian soil is an unacceptable violation of our sovereignty,” Mr Trudeau said.
In a statement, India’s foreign ministry said: “Allegations of [the] government of India’s involvement in any act of violence in Canada are absurd and motivated”. New Delhi has also retaliated by expelling a senior Canadian diplomat, a move it said reflects India’s “growing concern at the interference of Canadian diplomats in our internal matters and their involvement in anti-India activities”.
The foreign ministry confirmed that “similar allegations” of state involvement in Nijjar’s killing “were made by the Canadian prime minister to our prime minister, and were completely rejected”.
"Such unsubstantiated allegations seek to shift the focus from Khalistani terrorists and extremists, who have been provided shelter in Canada and continue to threaten India’s sovereignty and territorial integrity," India said, adding that the country was concerned over the inaction of the Canadian government.
"We are a democratic polity with a strong commitment to rule of law."
India has previously denied any involvement in Nijjar's killing even as it has condemned the rise in support for the Khalistan movement in Western countries with a sizeable Indian diaspora, such as Canada, the UK and the US.
Nijjar, 45, was a prominent leader of the Sikh secessionist movement that called for a separate homeland for the religious community to be carved out of India's Punjab state. India accused him of leading a proscribed militant group, something his supporters denied.
Canada's allegations against the Indian government come at a time when relations between the two countries are at an all-time low with New Delhi accusing Ottawa of allowing the Khalistan movement to thrive. Trade talks have been derailed and Canada just canceled a trade mission to India that was planned for the fall.
India accused Canadian "political figures" of "openly expressing sympathy for such elements".
"The space given in Canada to a range of illegal activities including murders, human trafficking and organised crime is not new," the statement read.
"We urge the Government of Canada to take prompt and effective legal action against all anti-India elements operating from their soil."
Mr Modi expressed "strong concerns" over Canada's handling of “anti-India activities of extremist elements” during a meeting with Mr Trudeau during the G20 summit, New Delhi had said.
Mr Trudeau responded by saying that Canada will “always defend freedom of expression, freedom of conscience, and freedom of peaceful protest and it is extremely important to us... at the same time we are always there to prevent violence and to push back against hatred”.
The Canadian prime minister reportedly raised Nijjar’s killing with US president Joe Biden and UK prime minister Rishi Sunak.
“We are deeply concerned about the allegations referenced by prime minister Trudeau,” said White House national security council spokesperson Adrienne Watson.
“We remain in regular contact with our Canadian partners. It is critical that Canada’s investigation proceed and the perpetrators be brought to justice.”