The kingdom will also suspend educational exchange programs with Canada and move Saudi scholarship recipients to other countries, Saudi-owned Al Arabiya reported Monday.
The first Canadian source said Ottawa had no regrets about speaking out on human rights in Saudi Arabia.
Badawi's wife Ensaf Haidar has been granted asylum by Canada, where she is raising their three children.
In April, Canadian Prime Minister Justin Trudeau expressed his "serious concern" over the continued jailing of Raif Badawi to Saudi King Salman.
"He was sentenced to 1,000 lashes and 10 years in prison, he received 50 lashes in 2015 and he could receive others, but he hasn't", she said.
The British government on Tuesday urged Canada and Saudi Arabia to show restraint.
Denmark fines first woman $156 for violating 'burqa ban'
The new law bans wearing a burqa, which covers a person's entire face, or the niqab, which only shows the eyes, in public. The police told the ppaer that nothing indicates that the turmoil arose from the fact that one woman was wearing niqab.
Saudi Arabia considers Canada's comments an interference in its affairs that require what it calls a "sharp response".
Analysts say the dispute between Riyadh and Ottawa shows Saudi Arabia won't accept any outside criticism and will continue flexing its muscles overseas, especially as the kingdom enjoys a closer relationship with President Donald Trump.
"The normal diplomatic route would have been to call the ambassador in and to let him know your displeasure and then to try to move from there", MacKay, Canada's foreign affairs minister from 2006 to 2007 and defence minister from 2007 to 2013, said in an interview with BNN.
Media captionSaudi Arabia's permanent representative to the United Nations confirmed the change in policy What has the relationship between Saudi Arabia and Canada been like in the past?
She was arrested last week after years of punishment by Saudi authorities, including a 2014 travel ban and a 2016 arrest. In 2014, the Canadian unit of USA weapons maker General Dynamics Corp (GD.N) won a contract worth up to $13 billion to build light-armored vehicles for Saudi Arabia, in what Ottawa said was the largest advanced manufacturing export win in Canadian history.
In an emailed statement, the department said "we continue to encourage and welcome all global students to come to Nova Scotia and attend our universities for their post-secondary education".
On one hand, it would be a bad scenario to cancel the arms deals, but on the other, many human rights groups have criticized Canada's decision to sell armoured vehicles to a regime with a "horrible human rights record", Juneau said.