India confirmed Thursday that it had demanded a further reduction in Canada's diplomatic presence, following reports New Delhi had ordered dozens of foreign service officers repatriated in a dispute over the killing of a Sikh separatist.

Relations between Delhi and Ottawa nosedived two weeks ago when Canada raised the possibility of Indian government involvement in the assassination of Hardeep Singh Nijjar near Vancouver in June.

The fallout prompted tit-for-tat diplomatic expulsions and a forceful denial from India, which said any suggestion it played a role in Nijjar's killing was "absurd".

Indian foreign ministry chief spokesman Arindam Bagchi would not confirm a Financial Times report this week that Canada had been told to repatriate 41 of its 62 diplomats by October 10.

But he did say that India "assumed that there would be a reduction" in Canada's presence after asking Ottawa to match the number of diplomats New Delhi had serving there.

"Given the much higher diplomatic presence of Canadian diplomats here, and their continued interference in our internal affairs, we have sought parity in our respective diplomatic presence," he told reporters at a regular news briefing.

India has already advised its nationals against travelling to parts of Canada and has temporarily stopped processing visa applications to Canada.

Canadian Prime Minister Justin Trudeau has described the situation as "extremely difficult" and said Tuesday that Ottawa was seeking to avoid escalating the situation.

The affair has complicated US government overtures to India, which have seen both countries steadily upgrade their relations over recent years.

Washington views New Delhi as a key ally in countering Chinese influence in the Asia-Pacific region. Both are members of the Quad strategic grouping alongside Japan and Australia.

US news outlet Politico said Eric Garcetti, Washington's ambassador to India, had warned that ties "could get worse for a time" and may warrant a reduction in contact with Indian officials.

A spokesman for the US embassy in New Delhi dismissed the reports.

"Ambassador Garcetti is working hard every day to deepen the partnership between the people and governments of the United States and India," the spokesman said.