The Gulf Arab kingdom also recalled its ambassador and gave the Canadian ambassador 24 hours to leave the country, a Saudi foreign ministry statement said late on Sunday, adding it retained "its rights to take further action."
The announcement carried on the official Saudi Press Agency caught diplomats in Riyadh off guard, a source with knowledge of the situation told Reuters, noting that both the Saudi and Canadian Ambassadors were away on leave when it was made.
Canada is "seriously concerned" about Saudi Arabia's freeze of new trade between the countries, but standing its ground on human rights comments, a Foreign Ministry spokeswoman said.
"Canada will always stand up for the protection of human rights, very much including women's rights, and freedom of expression around the world," said Marie-Pier Baril, adding that Canada was "seeking greater clarity" from the Saudi government.
It was not immediately clear what effect, if any, the move would have on the two countries' annual trade of nearly $4 billion and on a $13 billion defence contract awarded in 2014.
The Saudi statement said its foreign ministry had been told that the Canadian foreign ministry had urged Saudi Arabia to "immediately release" civil rights activists.
Saudi neighbor and ally Bahrain said hours later that it stood with the kingdom in the political row, without elaborating on whether it would also sever business ties with Canada. The United Arab Emirates stands with Saudi Arabia "in defending its sovereignty" after the kingdom froze new trade and investment with Canada, Minister of State for Foreign Affairs Anwar Gargash said on Monday on Twitter.
Last Wednesday, Human Rights Watch said Saudi Arabia had arrested women's rights activists Samar Badawi and Nassima al-Sadah, the latest two to be swept up in a government crackdown on activists, clerics and journalists.