OTTAWA—Canada on Thursday said dozens of its diplomats in India have left the country after the government of Prime Minister Narendra Modi threatened to remove their diplomatic immunity.

The move marks an escalation of a dispute between the two countries centered on the fatal shooting of a Sikh independence leader on Canadian soil. Canadian Prime Minister Justin Trudeau said last month that authorities were pursuing “credible allegations” of Indian involvement in the fatal shooting this year of a Sikh independence leader on Canada’s west coast. India has called Canada’s allegation “absurd.”