The index, published by the independent Institute for Economics and Peace, attributed Canada's rise to fewer casualties among its troops stationed in Afghanistan.
Overall, it showed the world was a more peaceful place last year despite unrest in different parts of the globe, reversing a two-year decline.
The survey also noted that sub-Saharan Africa does not occupy the bottom spot for the first time since the index was launched in 2007. The Middle East and North Africa region has taken over that position.
Syria, where thousands of people have died in an anti-government uprising in the past year, tumbled by 31 places to 147th position, said the institute, based in Australia and the United States.
Somalia remained the world's least peaceful country for a second year running. Afghanistan, Iraq, Israel and Pakistan were also in the bottom 10.
The United States, at 88th place, showed some improvement while Latin America recorded major gains with 16 of the 23 countries seeing progress.
"If the world was completely peaceful in 2011, the additional economic impact would have been an estimated US$9 trillion, " the institute said.
"While a total elimination of violence may not be possible, an achievable 25 per cent reduction in violence could reap a peace dividend of at least $2.25 trillion."
The index is based on the study of 23 indicators in 158 countries.
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