A summit of South Asian nations scheduled to be held in Bangladesh next week has been postponed.
Indian Prime Minister Manmohan Singh was the first to cancel
The announcement was made by Pakistan, which currently chairs the Saarc regional grouping.
The decision came after Indian Prime Minister Manmohan Singh cancelled his participation because of the political turmoil in neighbouring Nepal.
India said it was also concerned about security in Bangladesh. Dhaka has expressed anger at India's withdrawal.
Bangladesh Foreign Secretary Shamsher Chowdhury said: "We are shocked and dismayed at the unwarranted and unexpected
decision of the government of India not to attend.
"The reasons given for this decision as far as it relates to the security situation in Dhaka are unacceptable and rejected outright."
The South Asian Association for Regional Co-operation (Saarc) charter requires all heads of member nations to attend its annual conference.
Pakistan said that, with India having pulled out, the 6-7 February summit could not go ahead.
"The summit has been cancelled and fresh dates will be worked out after consultation," Pakistani Information Minister Sheikh Rashid told the AFP news agency.
"It is beyond our understanding why India refused at the last minute."
India's Foreign Secretary Shyam Saran said earlier: "This decision has been taken against the background of recent developments in our neighbourhood which have caused us grave concern.
"The developments in Nepal as well as the continuing and deteriorating security situation in Bangladesh are the two key factors," he told a news conference in Delhi.
India said it was very worried by King Gyanendra's decision to sack his government and declare a state of emergency in Nepal on Tuesday.
Delhi says the move is a serious setback to the cause of democracy and will only strengthen Maoist rebels fighting to replace the kingdom's monarchy with a communist republic.
India sent a security team this week to the Bangladesh capital, Dhaka, to assess the situation there.
A former finance minister was among those killed in a bomb attack on an opposition rally last week.