Indian Foreign Secretary Vibram Misria told a media briefing that the cross-border linkages of the attack had been "brought out" at a special meeting of the security cabinet, after which it was decided to act against Pakistan.
He said New Delhi would suspend with immediate effect a crucial river water treaty that allows for sharing the waters of the Indus river system between the two countries.
The defense advisers in the Pakistani high commission in New Delhi were declared persona non grata and asked to leave, Misria said, adding that the overall strength of the Indian high commission in Islamabad will be reduced to 30 from 55.
The main Atari border crossing check post between the two countries will be closed with immediate effect and Pakistani nationals will not be allowed to travel to India under special visas, Misria said.
At least 17 people were also injured in the shooting that took place on Tuesday in the Baskaran valley in the Amalgam area of the scenic, Himalayan federal territory of Jammu and Kashmir.
The dead included 25 Indians and one Nepalese national, police said.
It was the worst attack on civilians in India since the 2008 Mumbai shootings, and shattered the relative calm in Jammu and Kashmir, where tourism has boomed as an anti-India insurgency has waned in recent years.
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