The latest hostage is the second Canadian to be killed in two months after the militant group's demands for a large ransom were not met.
The hostage, Robert Hall, was abducted last September from a marina along with another Canadian, a Norwegian and a Filipino. The other Canadian was beheaded in April. He was identified as mining executive John Ridsdel.
Presidential spokesman Herminio Coloma condemned "the brutal and senseless murder" of Hall. He had been held in the jungles of southern Sulu province for nine months.
"This latest heinous crime serves to strengthen our government's resolve to put an end to this reign of terror and banditry," he said in a statement.
The group released a video in which Hall can be seen wearing an orange shirt and kneeling in front of a black Islamic State-style flag before the militants beheaded him in a jungle area.
The deadline for the payment of ransom set by the group ended on Monday. In Ottawa, Canadian Prime Minister Justin Trudeau said there was "compelling reason to believe" that Hall had been killed by his captors. "We have every reason to believe that the reports are unfortunately true," Trudeau said.
The Canadian premier added that he was "horrified" by the killings and reaffirmed his government's refusal to pay ransoms.
"The government of Canada will not and cannot pay ransoms for hostages to terrorist groups, as doing so would endanger the lives of more Canadians," Trudeau said in a statement.
"We are more committed than ever to working with the government of the Philippines and international partners to pursue those responsible for these heinous acts and bring them to justice, however long it takes."