Mr Trudeau told Canadian parliament that there were "credible allegations" of the Indian government's involvement in the slaying of Hardeep Singh Nijjar, who was fatally shot dead on 18 June in the parking lot of a gurdwara in Surry, British Columbia.
Nijjar, 45, was president of the Guru Nanak Sikh Gurdwara and a wanted terrorist in India with a bounty of Rs1m (£9,710) for information leading to his arrest. He was accused of leading a proscribed militant organisation called the Khalistan Tiger Force which calls for a separate homeland for the Sikh religious community to be carved out of India’s Punjab state.
The claim was dismissed by India as "absurd and motivated", with the foreign ministry lashing out over "growing concern at the interference of Canadian diplomats in our internal matters and their involvement in anti-India activities".
Livid India on Monday expelled one of Canada’s most senior diplomats in a tit-for-tat move after Ottawa fired an Indian diplomat working for India’s intelligence agency Research and Analysis Wing.
With the worsening diplomatic row, the Canadian prime minister appeared to try to subdue the situation with a fresh statement.
"We are simply laying out the facts as we understand them and we want to work with the government of India to lay everything clear and to ensure there are proper processes," he said.
"India and the government of India need to take this matter with the utmost seriousness.”
The burgeoning issue of Khalistan was raised by both Mr Trudeau and his Indian counterpart Narendra Modi on the sidelines of the G20 summit in New Delhi in September.
Mr Trudeau said he had “personally and directly” raised Nijjar's killing with Mr Modi. India's foreign ministry said Mr Modi expressed "strong concerns" over Canada's handling of “anti-India activities of extremist elements".
The Canadian prime minister reportedly raised Nijjar’s killing with the members of the “Five Eyes” intelligence-sharing alliance that also includes the UK and the US – home to a sizable Sikh population.
Australian foreign minister Penny Wong said Canberra was "concerned" by the shocking allegations made by Canada against the Indian government.
"I note that investigations are still underway," Ms Wong was quoted by the Australian Broadcasting Corporation as saying. "But obviously, these are concerning reports, and as I've said, we are monitoring these developments closely with our partners."
The White House expressed "concerns" over allegations, adding that it was "critical that Canada’s investigation proceeds and the perpetrators be brought to justice".
"These are serious allegations. It is right that the Canadian authorities should be looking into them," said Max Blain, a spokesperson for British prime minister Rishi Sunak.
Avtar Singh Khanda, who played a prominent role in protests for an independent Sikh homeland, died in June in the city of Birmingham under "mysterious circumstances".
Paramjit Singh Panjwar, a designated terrorist by India, was shot dead in May in Lahore, Pakistan, by unidentified assailants.