The Briton, a three-time winner on the Circuit Gilles Villeneuve, lapped the island track in one minute 16.118 seconds on an overcast afternoon on the banks of the St. Lawrence River.
Ferrari's former world champion Fernando Alonso upstaged the mighty Mercedes team by toping the time sheets in the morning session but Hamilton and Rosberg quickly restored order going one-two later in the day.
"Nico is very, very quick, the Ferraris are quick as well so you just don't know. Wait and see," said Hamilton about his chances of grabbing pole position. "Both me and Nico just working on the set-up and it's great to see we have great pace, it's been an incredible job from the guys in the factory.
"I think there is quite a bit to come because we don't have the set-up as well as we would like yet but that's the thing here - you are always chasing the set-up and trying to go faster."
Hamilton and Rosberg arrived in Canada downplaying a spat between the two that had dominated talk up and down the paddock but on the track their rivalry remained firmly in place.
The German, who snapped Hamilton's four-race win streak in Monaco to replace his team mate atop the standings, was 0.175 seconds behind the Briton, setting the stage for another hotly-contested battle for the pole on Saturday.
Mercedes have started every race from pole, claiming five successive one-two finishes.
"I think qualifying could be quite crucial," said Rosberg, who started from pole in Bahrain and Monaco. "If it is against Lewis I am driving then qualifying could be very crucial.
"We have good pace here, looking very promising. We expected to be strong at this track and it seems to look like that at the moment."
Rosberg leads overall with 122 points to Hamilton's 118 while Mercedes have a hefty 240 points in the constructors' standings, with Red Bull second on 99.
Red Bull continued to show improvement as quadruple world champion Sebastian Vettel, a winner in Montreal last year, posted the day's third best time.
Ferrari, who had also been struggling to match the pace of Mercedes, saw Kimi Raikkonen clock the fourth best effort followed by Alonso, the 2006 Canada champion and runnerup last year.
"There were quite a few things," said Ferrari technical director Pat Fry, when asked about improvements to the car. "It's far too early to say if it is all working or not. Some things look promising, some things we need more detail.
"I think it is going to be a very tough challenge (catching Mercedes). There is quite the gap let's face it, we just have to do our best and keep developing."
The Williams of Filipe Massa and Valtteri Bottas were sixth and seventh
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