Canada worked "very closely" with the United States on intelligence that Indian agents had been potentially involved in the murder of a Sikh leader in British Columbia earlier this year, a senior Canadian government source said on Tuesday.

Prime Minister Justin Trudeau announced on Monday that domestic intelligence agencies were actively pursuing credible allegations tying New Delhi's agents to the shooting of Hardeep Singh Nijjar, 45, in June.

"We've been working with the US very closely, including on the public disclosure yesterday," the source said. The evidence in Canada's possession would be shared "in due course", said the official who spoke on condition of anonymity due to the sensitivity of the information.

Trudeau on Tuesday told reporters that the case had far-reaching consequences in international law, and urged the Indian government to take the matter seriously and help Canada fully investigate the matter.

India quickly dismissed Trudeau's assertion as absurd, and said it was expelling a Canadian diplomat, a tit-for-tat move after Canada expelled India's top intelligence figure on Monday.

The dispute deals a fresh blow to diplomatic ties that have been fraying for years, with New Delhi unhappy over Sikh separatist activity in Canada.

"I would expect that normal discussions between the two governments will be difficult while this issue is being resolved," said Roland Paris, Trudeau's former foreign policy adviser and a professor of international affairs at the University of Ottawa.

US authorities, earlier on Tuesday, said they supported Canada's investigation.

"We have been in close contact with our Canadian colleagues about this. We're quite concerned about the allegations. We think it's important there is a full and open investigation, and we would urge the Indian Government to cooperate with that investigation," a senior State Department official said.

Now some, including Canada's Conservative opposition leader, Pierre Poilievre, are urging Trudeau to show the evidence that the government has in hand.

Jesse Singh, founder and chairman of the community group, Sikhs of America, told an event hosted by Washington’s Hudson Institute think tank that Trudeau has failed to provide any proof.

"It's just something that he said is a ‘credible allegation,’ with no proof at all. And I think we'll have to wait to see if there is any proof there and then I think further decisions can be taken," Singh added.

The spat has already thrown cold water on trade talks, which have been paused, and Canada last week called off a major trade mission scheduled for October.

A second Canadian source familiar with the situation said that both the pause in the trade talks and the delay of the trade mission were due to the concerns surrounding the murder of the Canadian.

New Delhi, which has urged Ottawa to act against anti-Indian elements, has long been unhappy over Sikh separatist activity in Canada.

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 designated him as a "terrorist" in 2020.