NEW DELHI (Reuters) - Fast food chain McDonald's MCD.N said on Monday it planned to shut all 169 of its restaurants in India's northern and eastern regions, escalating a dispute with its local partner and potentially putting thousands of workers out of jobs.

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The U.S. company said it was “compelled” to take the action because its partner Connaught Plaza Restaurants Pvt Ltd (CPRL) had breached the terms of their franchise agreements.

Vikram Bakshi, managing director of CPRL, told Reuters the decision came as a “big shock” and the company was studying all its legal options.

The move by McDonald’s India follows a protracted legal dispute with CPRL that started in 2013, when McDonald’s said Bakshi’s term as managing director had ended - a decision Bakshi challenged in the courts.

“They fell out because McDonald’s thought that Mr Bakshi was involved in irregular siphoning activities, so they wanted him to go,” said A.S. Chandiok, a lawyer representing Bakshi, who added that his client denied the allegations.

McDonald’s did not comment on the court dispute in its statement on Monday, but said it would try to mitigate the impact on employees, suppliers and landlords affected by the closure of the outlets.

The decision will likely lead to thousands of job losses and further dent McDonald's share of India's booming quick service restaurants market, where it has already been losing ground to rivals like Domino's Pizza DPZ.N.

The north and east Indian outlets under the McDonalds-CPRL franchise employ 6,500 people directly and many more indirectly, said Madhurima Bakshi, a member of CPRL’s board.

All those restaurants will have to stop using McDonald’s name, trademarks, designs, branding, and recipes within 15 days of the termination notice, McDonald’s said. It added, though, that it remained committed to northern and eastern India and had started looking for a new partner.

“It will take time to bring the current situation to a final resolution,” McDonald’s said.