India ordered the Pakistani ambassador sent home Saturday, as thousands of villagers fled increasing cross-border firing in the Kashmir region.
The expulsion, to take effect within a week, has reignited fears that the two nuclear powers are on the brink of another war over the disputed territory.
Washington is urging both sides to resume dialogue.
Saturday's move was announced after Indian Prime Minister Atal Bihari Vajpayee met with cabinet ministers, military chiefs and intelligence advisors to discuss how the country should respond to a deadly attack earlier this week.
Militants attacked a bus at an army base in Indian-controlled Kashmir on Tuesday. The attackers killed 34 people, most of them wives and children of Indian soldiers.
India withdrew its ambassador from Pakistan late last year, after a deadly attack on the parliament in New Delhi in December.
Tensions rose over the next few weeks, with both countries slashing their diplomatic staff and building up their military presence at the border.
India's External Affairs Minister Jaswant Singh told reporters Saturday that since his government's diplomat had already left Pakistan it was time Islamabad withdrew its ambassador from New Delhi.
Ashraf Jehangir Qazi must leave, he said, "for the sake of parity of representation between the two countries."
Pakistan said it was disappointed by the expulsion, which it said would only increase tension along the border.
Meanwhile, the violence continues. A bomb left on a scooter in Srinigar killed two people on Friday.
Friday night, mortar and artillery fire across the border sent villager scurrying out of their homes looking for safety.
Cross border firing in Kashmir has been a regular occurrence since the subcontinent was partitioned in 1947 at the time of independence from Britain. Two of three wars between India and Pakistan since then have been fought over the disputed, and divided, territory.
India accuses Pakistan of backing a Muslim rebel movement that has fought Indian rule in Kashmir since 1989. Tens of thousands of people have died in the fighting.
It's an allegation Pakistan denies. But Islamabad says it does support the militants' goal of independence from India or a merger with Pakistan for Kashmir.