India, the world's fastest-growing telecom market, said it would hobble Research In Motion's BlackBerry smartphone unless the company gives it the keys to decode encrypted email and messages by the end of August.
The ultimatum was issued on Thursday, hours after senior government officials and state-run telecom operators met to discuss how to access BlackBerry data.
Authorities fear the BlackBerry encryption could provide cover for militants like those who used mobile phones to carry out a series of deadly attacks in Mumbai two years ago.
India said if RIM didn't meet its demands by August 31 the law would require phone operators to close the encrypted BlackBerry Enterprise email and Messenger services carried over their networks.
RIM has assured us they will come with some solution. It remains to be seen whether they address our security concerns, said a senior internal security official who declined to be identified.
In response the company said its most secure Enterprise system was sacrosanct but it was willing to open its consumer services in line with requirements imposed on competitors.
Driving RIM's position is the fact that strong encryption is a fundamental commercial requirement for any country to attract and maintain international business, the firm said.
India is not the only country concerned about RIM. Saudi Arabia and other Arab countries say encrypted data sent via BlackBerry could threaten national security, social mores or both.
RIM shares closed 3.5 percent lower in Toronto and New York, though the stock has not moved sharply down since the security issue moved front and center early this month.
The stock has responded more to a new touchscreen device designed to compete directly with Apple's iPhone. The new BlackBerry Torch, released Thursday, has failed to excite analysts.
For RIM, any compromise could jeopardize its appeal to business executives and politicians, like U.S. President Barack Obama, who require air-tight communications. A deal in one country will also embolden others to make tough demands.
RIM has said BlackBerry's Enterprise system lets customers create their own key, and the company has neither a master key nor a back door to allow it or any third party to access crucial corporate data.
But a shutdown could also limit the company's ambitions to expand in emerging economies like India, where 1 million of the BlackBerry's 41 million customers live.
Competitors have eaten into RIM's once-dominant share of the North American smartphone market, pushing the company to look elsewhere for growth.
RIM, unlike rivals Nokia and Apple, operates its own network through secure servers located in Canada and other countries, such as Britain.
The Indian demands follow progress in talks with Saudi Arabia, where a source said RIM agreed to give authorities codes for BlackBerry Messenger users. The United Arab Emirates, Lebanon and Algeria also seek access.
If a shutdown takes effect, BlackBerry users in India would only be able to use the devices for calls and Internet browsing.
(Additional reporting by Devidutta Tripathy and Krittivas Mukherjee, Alastair Sharp in Toronto; Writing by Alistair Scrutton, Paul de Bendern and Frank McGurty; Editing by Ron Popeski)