Pakistan has warned India that any move to restrict water into the country would be considered "an act of war", as relations between the nuclear-armed neighbours further deteriorate days after a deadly attack.
The attack at a popular tourist destination in India-controlled Kashmir that left 26 people dead and 17 other people wounded sparked outrage in New Delhi, which accused Islamabad of supporting the militants behind it.
New Delhi said it had "cross-border" links to Pakistan, without providing any evidence.
Kashmir police later released the names of three militants it alleged were behind the attack, claiming two were Pakistani.
Islamabad denied any involvement, with a previously unknown militant group that called itself the Kashmir Resistance claiming responsibility.
Hundreds have joined protests across Pakistan following India laying blame for the attack.
India and Pakistan claim the entirety of the Kashmir as its own, but both countries administer a part of the region, which has long been a point of contention.
In the days following the attack, both countries have launched a diplomatic offensive against the other.
Pakistan has suspended all trade with India.
Islamabad also announced that Pakistan's airspace was closed for Indian airlines.
The two countries have cancelled the visas of nationals from the other country and expelled senior military officials.
The main land border between the two countries will also close.
Diplomatic missions in both countries will reduce from 55 to 30 as of May 1.
Indus Water Treaty suspended
India has also moved to suspend the Indus Water Treaty, which details how water that flows from India to Pakistan can be used by the countries.
Pakistan relies on the water under the agreement for 80 per cent of its irrigated agriculture and hydropower needs.
The agreement has been in place since 1960 and there is no provision in the treaty for either side to suspend or terminate the pact.
Pakistan's Prime Minister Shehbaz Sharif reacted firmly to India's move to suspend the pact.
"Any attempt to stop or divert the flow of water belonging to Pakistan as per the Indus Waters Treaty … will be considered as an act of war and responded with full force across the complete spectrum of national power," a statement from his office said.
Pakistan’s Foreign Minister Ishaq Dar said India's claim that Islamabad was behind the Kashmir attack was "irresponsible".
At a rally on Thursday, India's Prime Minister Narendra Modi said his country would "identify, track and punish every terrorist, their handlers and their backers."
"We will pursue them to the ends of the earth," Mr Modi said.
He was expected to head meetings with all parties in India to discuss the country's response.
India's Defence Minister Rajnath Singh earlier this week pledged to "not only trace those who perpetrated the attack but also trace those who conspired to commit this nefarious act on our soil" and hinted at the possibility of military strikes.
Pakistan changed position on jihadi groups
Samina Yasmeen, Director for the Centre for Muslim States & Societies, said it was less likely that Pakistan supported the militants behind the attack than ten years ago.
She said the government and military had supported some groups in the past, but that both had "toned down" its support since the 1990s and early 2000s, when it had used militants "for jihadi purposes".
"If you constantly promote jihadi groups you can actually be a target yourself," Professor Yasmeen said.
"The Pakistani government's position has changed, but that still doesn't mean that there aren't some groups that are either taking it on their own, or have got some support — maybe not necessarily from the top-brass of the government — but somewhere."
[THE WORLD IV]She said it looked unlikely at this stage that the two countries would engage in a full-blown conflict because neither could afford it economically, and New Delhi was trying to build stronger ties in the region.
"[India] couldn't be seen to be responding to something that they have come up with as an allegation by attacking Pakistan," she said.
"There could be incursions in the Pakistani side of Kashmir, but we will have to see how it goes."
Kashmir in mourning
Residents of Kashmir have been shocked by the attack on the tourists, with militants previously attacking Indian security forces.
Some Kashmiris have taken to the streets in protest following the attack, while others have held candle-lit vigils for those killed.
Markets, private schools and businesses were shut on Wednesday, local time, amid an uneasy calm following the violence.
The area had become a tourist hotspot, but many had rushed to leave in recent days.
“The people here are in fear and panic,” said hotelier Manzoor Ahmed, adding that tourists would now be skeptical of visiting Kashmir.
Funerals of several of those killed were also held across some Indian cities.
ABC/wires
