During my thoughts, I will assume that Krennic is a relatively smart guy, since he somehow managed to move up the ladder so far, that he was mainly responsible for constructing the first Death Star.
Also, Galen Erso is nothing short of a genius and Krennic is well aware of this.
At some point between the events of RotS and the opening scene of Roque One, Erso finds that Krennic and the empire does not plan to use his reasearch for peaceful purposes but to construct weapons. Consequently he leaves the empire and hides from it. This is a very clear statement of Erso, that he is not going to construct weapons for the empire.
Then in the opening scene of Roque one, Krennic has Erso's wife killed and explicitly tells his troopers to do the same (or at least capture her) with his daugther Jyn:
Krennic: "They have a child. Find it!"
To get things straight: Galen decided to spend the rest of his life separated from civilazation only with his wife and daughter, so he really loved them. Then Krennic shows up, kills his wife, wants to capture/kill his daughter (which Galen predicted and thus bulit a hideout for her) and then forces him to work on something, which he explicitly refused to do at some earlier point.
Taking all this into consideration, preparing some inside job to spoil the Death Star was pretty much the obvious choice for Galen. Why on earth would Krennic trust him all this years between the opening scene of Roque One and the events shortly before Galen's death? He seems not to suspect anything bad from Galen until the point where Tarkin tells him that there are rumors about a traitor in Galen's team of scientists.
He could have hired someone to watch over Galen. This is a pretty common method in dictatorships, so we can safely assume that the empire also used to do that. But Krennic did not.
It is also explicitly stated, that the empire does not necessarily need Galen to finish the construction of the Death Star. So the argument that Krennic had no choice is somehow not working here.
Answer
Krennic doesn't understand Galen. He doesn't understand how much Lyra and Galen love each other, or what they would do for each other.
Through the entire plot of Catalyst, Krennic is misreading the situation. He believes that Galen would be happy to just focus on his work, and would be easily manipulated into weaponising his work, if it weren't for the distraction of Lyra. He sees Lyra as something of a vice for Galen, a destructive influence that distracts from what's important, and he makes several attempts to get Lyra and Galen to split up. At one point it appears he's succeeded, sending Lyra off on a surveying expedition with Jynn, and during this time Galen does indeed lose himself in his work and starts to make rapid progress. During the same period, Galen is deliberately distancing himself from his family. When Galen and Lyra reconnect, everything goes wrong again, and they all disappear.
He feels, then, that getting rid of Lyra permanently is 'tough love', forcing Galen to go cold turkey so that he can focus on what's really important.
Of course, what's really happening is something completely different. Lyra and Jynn aren't a vice that Galen needs to get rid of, they're his motivation to stay human and keep working. Without them he's moody and unstable, and when he distances himself from them it's to protect them from learning that he's giving in to Krennic's pressure.
Krennic totally misread the situation, and completely midunderstood the deep bond between Galen and Lyra. In his mind, killing Lyra is just purging his friend's vice, like someone who dumps a loved one's alcohol down the drain to force them to sober up. Yes, it's harsh in the moment, but once you're free of that horrible influence you'll see that you never really needed it!
(Unfortunately I don't have my copy of Catalyst with me to provide citations. I'll try to add them in later)
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