Canada yesterday announced that it was suspending the funding while Sri Lanka remains chair of the bloc over the country's right record.
"Regrettably the Canadian government has sought to use its voluntary funds as a political tool... Thereby holding the membership of the wider Commonwealth to ransom," the External Affairs Ministry said in a statement.
The Ministry was responding to comments by the Canadian Foreign Minister John Baird that Canada was deeply concerned about the absence of accountability for alleged serious violations of human rights in Sri Lanka, the report said.
Sri Lanka in response said that when Canadian Prime Minister Stephen Harper announced his decision to stay away from last November's Commonwealth Summit held in Colombo, he had alluded the issue to the issue of cutting back Canadian contributions.
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"Baird's comment in justifying Canada's action is a castigation of the organisation as a whole," the statement said.