Italy has accused India of violating laws on diplomatic immunity by preventing its ambassador from leaving the country,
in an escalating dispute over two marines who skipped bail while on trial for murder in New Delhi.
Chief Justice Altamas Kabir, India's top judge, said on Monday that Italy's ambassador Daniele Mancini had forfeited his diplomatic immunity over his role in securing the release of the pair who were accused of killing two Indian fishermen.
However, the foreign ministry in Rome said India was breaking diplomatic conventions by ordering the envoy to stay in the country until the next hearing of the case on April 2.
"The Supreme Court's decision to prevent our ambassador from leaving the country without the court's permission is a clear violation of the Vienna convention on diplomatic relations," it said in a statement released on Monday.
"Italy continues to believe that the case of its two marines should be resolved according to international law," it said, adding that it "wants to keep friendly relations" with India.
Kabir said Mancini, who had negotiated the Italians' release last month so they could vote in an election, had waived his immunity by giving an undertaking to a court that the pair would return.
The marines, Massimiliano Latorre and Salvatore Girone, are accused of shooting dead two fishermen off India's southwest coast in February last year, when a fishing boat sailed close to the Italian oil tanker they were guarding.
They say they mistook the fishermen for pirates.
The pair had been given permission to fly to Italy to cast their votes in the election on the understanding that they would return, but the Italian government announced last week it would revoke its decision to send the men back.
"We have lost all trust in the ambassador "
- Chief Justice Altamas Kabir
New Delhi has warned of "consequences" and is reviewing its ties with Italy, while the case is being watched carefully by India's allies because it could set precedents over the treatment of foreign diplomats.
India has put its airports on alert to prevent Mancini from leaving the country.
The Supreme Court issued instructions that "appropriate steps" should be taken to restrain him.
Without legal protection he could be prosecuted for contempt of court.
A lawyer for the Italian government argued at Monday's hearing that Mancini still enjoyed diplomatic immunity and freedom of movement under international rules contained in the 1961 Vienna Convention on Diplomatic Relations.
However Kabir, who was heading a three-judge bench, said: "We have lost all trust in the ambassador."
Katherine Reece-Thomas, an international law expert at City University in London, agreed that India risked being in breach of its Vienna Convention commitments.
"The only sanction available to the host state [India] is to declare the diplomat to be persona non grata and demand that he leave," Reece-Thomas wrote in an email sent to the AFP news agency.
"India cannot stop the ambassador leaving against his will and any suggestion that he somehow waived his rights under the Convention is unfounded."
In Brussels, the EU's foreign service earlier on Monday reacted cautiously to Kabir's decision.
India and Italy should "pursue all avenues for an amicable solution", said the spokesman for EU High Representative Catherine Ashton.
Italy insists the marines should be prosecuted in their home country because the shootings involved an Italian-flagged vessel in international waters, but India says the killings took place in waters under its jurisdiction.
Relations between the two countries have also been soured by corruption allegations surrounding a $748m deal for the purchase of 12 helicopters which the Indian government is now threatening to scrap.