By Kanishka Singh and Costas Pitas

WASHINGTON (Reuters) -The United States and Britain on Friday urged New Delhi not to insist on Canada's reducing its diplomatic presence in India and expressed concern after Ottawa pulled out 41 diplomats amid a dispute over the murder of a Sikh separatist.

Canada has alleged Indian involvement in the June murder in a Vancouver suburb of Canadian citizen and Sikh separatist leader Hardeep Singh Nijjar, whom India called a "terrorist." India denies the allegation.

"We are concerned by the departure of Canadian diplomats from India, in response to the Indian government's demand of Canada to significantly reduce its diplomatic presence in India," U.S. State Department spokesperson Matthew Miller said.

Washington has said it took Canada's allegations seriously and, along with London, urged India to cooperate with Canada in the murder probe even as Western powers have been reluctant to openly condemn India. Analysts say the U.S. and the UK do not want to damage ties with India, which they view as a counterbalance to their main Asian rival China.

But Friday's statements from the U.S. State Department and Britain's Foreign Office have been the most direct criticism by Washington and London of New Delhi thus far in this case.

"We do not agree with the decisions taken by the Indian government that have resulted in a number of Canadian diplomats departing India," a spokesperson for Britain's Foreign Office said.

Canada withdrew 41 diplomats from India after New Delhi last month asked Ottawa to reduce its diplomatic presence following Canada's allegations over Nijjar's killing. Canada on Friday said it was temporarily suspending in-person operations at consulates in several Indian cities and warned of visa processing delays.

"Resolving differences requires diplomats on the ground. We have urged the Indian government not to insist upon a reduction in Canada’s diplomatic presence and to cooperate in the ongoing Canadian investigation," the U.S. State Department said, adding that it expects "India to uphold its obligations under the 1961 Vienna Convention on Diplomatic Relations."

Britain's Foreign Office also cited the Vienna Convention, saying, "The unilateral removal of the privileges and immunities that provide for the safety and security of diplomats is not consistent with the principles or the effective functioning of the Vienna Convention."

(Reporting by Kanishka Singh and Costas Pitas; additional reporting by David Ljunggren in Ottawa and Baranjot Kaur in Bengaluru; Editing by Josie Kao and Leslie Adler)