The escalating row over the murder of a Sikh separatist leader has the potential to derail years of close relations between Canada and India, two key strategic partners on security and trade.

The rift burst into the open on Monday when Prime Minister Justin Trudeau said Canada was investigating "credible allegations" about the potential involvement of Indian government agents in the murder of Hardeep Singh Nijjar in British Columbia in June.

India responded furiously - it "completely rejected" the allegations, calling them "absurd". Both have expelled one of the other's diplomats and it's unclear how they now pull back from the brink.

Just a few months ago, the countries were making progress towards signing a free trade agreement - long in the works - this year. Now, talks are paused and an imminent Canadian trade mission to India postponed.

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