Trudeau confirmed the "unnecessary death" of 68-year old John Ridsdel, addressing reporters from a cabinet retreat in Alberta on Monday.
"This was an act of cold-blooded murder and responsibility rests squarely with the terrorist group who took him hostage," he said.
Militants from Abu Sayyaf Islamists group reportedly kidnapped Ridsdel and three other hostages - fellow Canadian Robert Hall, Norwegian Kjartan Sekkingstad and Filipino Marites - from a south Philippine marina last September.
The Philippine army said a severed head had been found on a remote island on Monday, hours after the expiry of a ransom deadline set by the militants. They had threatened to execute one of the four captives. Canadian state media reported the Western hostage who had been beheaded was Ridsdel.
Trudeau said that Canada would continue working with the Philippines and other partners to bring the murderers to justice. However, his cabinet would not comment further or release information that may endanger the remaining hostages, Trudeau added.
The Abu Sayyaf gunmen are still believed to hold Robert Hall, who is also a Canadian citizen, alongside a Norwegian man and a Filipino woman.
Money over jihad
Earlier, the kidnappers threatened to kill one of the men if a ransom of 300 million pesos (6.52 million dollars, 5.78 million euros) was not paid on Monday afternoon. The group also posted an online video, with the late Ridsdel saying he would be killed if the deadline expires.
Only hours after the deadline, the Philippine police announced they had found a severed head of a Caucasian. Two people on a motorbike dropped it near city hall on the mostly lawless island of Jolo, some 1,000 kilometers (600 miles) south of the capital Manila, officials say.
"We found a head in a plastic bag," provincial police chief Wilfredo Cayat told the AFP news agency.
Before the head was discovered, the security services said they were putting in "maximum efforts" to rescue the hostages.
"An estimated 400 Abu Sayyaf members and supporters are reportedly involved," they added in a statement.
The al Qaeda-linked Abu Sayyaf is behind numerous terror attacks on Filipino soil. However, observers claim that the group is mostly focused on kidnapping and extorting money.
Earlier in April, the militants released Italian missionary Rolando del Torchio after allegedly receiving some $630,000 in ransom. The retired priest had spent six months in captivity in Jolo.
dj/jr (dpa, AFP, AP, Reuters)