India blames Pakistan for the assault in the disputed Himalayan region of Kashmir earlier this month that has heightened fears of a new conflict between the nuclear-armed neighbours.
Tensions rose further on Tuesday as India's Prime Minister Narendra Modi cancelled the trip, and Islamabad warned it would treat it as "an act of war" if India revoked a water treaty.
India pulls out of SAARC summit in Islamabad
The South Asian Association for Regional Cooperation (Saarc) summit cannot take place even if only one of the eight members withdraws.
Bangladesh on Wednesday said it has communicated its inability to attend the summit to current SAARC chair, Nepal. The Bangladeshi High Commissioner to India, Syed Muazzem, said current circumstances were "not conducive to producing concrete and satisfactory results."
In separate statements, Kabul and Thimpu also announced their decision to withdraw.
Pakistan's foreign ministry called India's move "unfortunate" and said it remained committed to peace and regional cooperation. In a statement, it accused India of meddling in Pakistan's internal matters.
India's decision to cancel the trip is the latest attempt by India to try to pressure Pakistan diplomatically. India has said it will respond to the Kashmir attack but experts say it is short of military options because of the risk of escalation.
SAARC anti-corruption forum: NAB chief calls for corruption-free South Asia
"The signal cannot be sent that we are rewarding Pakistani bad behaviour by allowing our prime minister to go to their country even for a multilateral meeting," said an India Congress Party leader, Shashi Tharoor, standing by the ruling Bharatiya Janata Party (BJP)'s decision.
India on Monday began a campaign to isolate Pakistan at the United Nations, and Modi told officials India should exploit more of the water from three rivers that flow into its neighbour, potentially cutting water levels downstream.
"It's part of a larger policy of isolation of Pakistan," said India's former foreign secretary, Lalit Man Singh. "India has done that internationally by raising the issue of Pakistan and its links with terrorism at the U.N., at the G20, at the BRICS Summit."
India says Pakistani militants sneaked across the de facto border that separates the countries and killed 18 soldiers on September 18, the biggest loss of life for Indian security forces in the region for 14 years.
Pakistan rejects the accusation and says India should conduct a proper investigation before it apportions blame.
Indian and Pakistani mistrust has long undermined South Asian regional cooperation and is widely blamed for the poor performance of SAARC, which successive Indian leaders hoped would help South Asia become a viable economic counterweight to China.
Divided between India and Pakistan since 1947, the nuclear flashpoint of Kashmir lies at the heart of the countries' rivalry. India also faces an insurgency against its rule in the portion it controls, its only Muslim-majority state.
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