• PM Trudeau said Canadian intelligence had identified a "credible" link between his death and the Indian state.
• India's foreign ministry described the claims as "absurd" and politically motivated.
India has strongly rejected allegations by Canada's PM Justin Trudeau that it had any role in the death of a Canadian Sikh leader.
Hardeep Singh Nijjar was shot dead outside a Sikh temple on 18 June in British Columbia.
Mr Trudeau said Canadian intelligence had identified a "credible" link between his death and the Indian state.
India's foreign ministry described the claims as "absurd" and politically motivated.
"We are a democratic polity with a strong commitment to rule of law," the ministry said in a statement.
The incident is the latest escalation in an already strained relationship between the two nations.
On Tuesday, the White House said it was "deeply concerned" about Mr Trudeau's allegations.
"We remain in regular contact with our Canadian partners. It is critical that Canada's investigation proceed and the perpetrators be brought to justice," White House National Security Council spokesperson Adrienne Watson said.
Mr Trudeau said in parliament on Monday that he had raised the issue of Mr Najjar's killing with Indian Prime Minister Narendra Modi at the recent G20 summit in Delhi.
"Any involvement of a foreign government in the killing of a Canadian citizen on Canadian soil is an unacceptable violation of our sovereignty," he told lawmakers.
"It is contrary to the fundamental rules by which free, open and democratic societies conduct themselves."
India has previously denied any involvement with Mr Nijjar's murder.
On Tuesday, India's ministry of external affairs said that it "completely rejected" Mr Trudeau's claims.
"Allegations of government of India's involvement in any act of violence in Canada are absurd and motivated," said the ministry.
"Similar allegations were made by the Canadian prime minister to our prime minister, and were completely rejected."
The statement added that Canada had long provided shelter to "Khalistani terrorists and extremists" who threaten India's security.
"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.
On Monday, Canadian Foreign Minister Melanie Joly told reporters that an Indian diplomat, Pavan Kumar Rai, had been expelled over the case.
Ms Joly said Canadian officials are limited in what they can say in public about the case due to the ongoing homicide investigation into Mr Nijjar's death.
Mr Nijjar was shot dead in his vehicle by two masked gunmen on a mid-June evening in the busy car park of the Guru Nanak Sikh Gurdwara in Surrey, a city about 30km (18 miles) east of Vancouver.
Investigators have previously categorised the death of 45-year-old Mr Nijjar as a "targeted incident".
A prominent Sikh leader in the western-most province of British Columbia, he publicly campaigned for Khalistan - the creation of an independent Sikh homeland in the Punjab region of India. His supporters have said that he was a target of threats in the past because of his activism.
India has previously described him as a terrorist who led a militant separatist group - accusations his supporters call "unfounded".
Mr Trudeau said Canada had expressed concerns about Mr Nijjar's death to high-level security and intelligence agencies in India.
He also raised it with US President Joe Biden and UK Prime Minister Rishi Sunak.
"I continue to ask with a great deal of firmness that the government of India co-operate with Canada to shed light on this situation," he said.
Mr Trudeau said that Mr Nijjar's shooting has angered Canadians, leaving some fearful for their safety.
After Mr Trudeau's comments in Ottawa, several large posters and tributes to Mr Nijjar were visible at the Guru Nanak Sikh Gurdwara in Surrey.
Moninder Singh, a spokesman for the British Columbia Sikhs Gurdwaras Council, told the BBC there was a sense both of frustration and appreciation in the community after Mr Trudeau's comments.
"This operation being allowed to be carried out on foreign soil in Canada," he said. "That's where the frustration comes from.
"The appreciation comes from the fact that at least the prime minister stood up and acknowledged that there is a foreign hand behind this murder, and this assassination."
Other Sikh groups in Canada, including the World Sikh Organisation, welcomed the prime minister's statement, saying Mr Trudeau confirmed what was already widely believed in the community.
There are an estimated 1.4 to 1.8 million Canadians of Indian origin. The country has the largest population of Sikhs outside the state of Punjab in India.
Mr Trudeau's remarks come after his tense meeting with Mr Modi last week during the G20 summit in India.
During that meeting, according to a statement from the Indian government, Mr Modi accused Canada of not doing enough to quell "anti-India activities of extremist elements", referring to the Sikh separatist movement in the country.
Canada also recently suspended negotiations for a free trade agreement with India. It gave few details on why, but India cited "certain political developments".
Mr Nijjar is the third prominent Sikh figure to have died unexpectedly in recent months.
In the UK, Avtar Singh Khanda, who was said to be the head of the Khalistan Liberation Force, died in Birmingham in June under what have been described as "mysterious circumstances".
Paramjit Singh Panjwar, who was designated a terrorist by India, was shot dead in May in Lahore, the capital of Pakistan's Punjab province.
The backdrop to the tension between Delhi and Ottawa is the increasing pressure the Indian administration has put on governments of three countries with sizeable Sikh populations: Canada, Australia and the UK.
It has openly said that a failure to tackle what it calls "Sikh extremism" would be an obstacle to good relations.
Australian officials said they would look into vandalism of Hindu temples by pro-Khalistan activists, but would not stop Australian Sikhs expressing their views on an independent homeland.
A Scottish Sikh, Jagtar Singh Johal, has also been held in an Indian prison for more than six years without trial, accused of extremist activities, but he says he has been tortured and forced to sign a confession.
Human rights group Reprieve says it has evidence that his arrest came (while he was in India to get married) after a tip-off from British intelligence.