Sarai, 43, had invited Jaspal Atwal - a Sikh convicted of attempting to assassinate an Indian minister in 1986 - to attend a reception at the residence of Canadian High Commissioner Nadir Patel in New Delhi.
The invitation was revoked as soon as Atwal's name was discovered on the guest list.
Trudeau met with Sarai late yesterday during which the lawmaker offered to resign as chair of the party's Pacific Caucus, The Star newspaper reported.
"As I don't want to distract from the good work of the Pacific caucus, I will be stepping down as caucus chair."
Trudeau has accepted Sarai's offer to resign, the paper added.
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