Twenty-five-year-old Martin Rouleau is thought to have killed one and injured the other when he rammed his car into the men in a Quebec car park.
It turns out Rouleau who was an Islam convert had been previously detained by police as a suspected militant.
“We arrested him, we interviewed him and the information we had and the statement he provided to us, we could not have enough evidence to charge him and to detain him, so we released him.,” said Commissioner Martine Fontaine of the Royal Canadian Mounted Police (RCMP).
After witnesses said he had used his car as a weapon to attack the soldiers, Rouleau was shot dead following a police chase.
He was one of 90 people being tracked by officers on suspicion of planning to commit acts of terror abroad.
Canadian security officials have worried for years about the threat of radicalised young men.
The incident is the first fatal attack on Canadian soil tied to Islamist militants and comes as six fighter jets left to join the fight against ISIL extremists in Iraq.