The move follows the Conservative government's loosening of most of its sanctions against Myanmar earlier this year.
Foreign Affairs Minister John Baird said Friday he hopes that opening an embassy in Myanmar, once known as Burma, will encourage progress.
"Although the Burmese government has taken positive steps to improve human rights and democracy over the past year, we continue to urge more progress on reforms. Canada stands ready to assist in any capacity to build on the democratic fundamentals, and the freedoms and rights of their people."
Earlier this year, Baird visited Myanmar to confer honorary Canadian citizenship on former political prisoner Aung Sang Suu Kyi, who won a parliamentary seat in historic elections there.
As if to underscore the challenges still facing Myanmar, the foreign affairs minister's announcement fell on the same day as the United Nations said authorities in the country detained 10 UN staff and foreign aid workers.
"There's been an incredible amount of reform in the country over the past 18 months,"Baird said. "We're impressed by that reform.
"Obviously, although they've taken some very positive steps, there's still more progress required. Obviously, what I want to do on learning this is two things: one is to find out what the exact facts are, what the reason for the detention was. And then we'd certainly be prepared to respond on a more fulsome basis."
Meanwhile, U.S. Secretary of State Hillary Clinton was in the Cambodian city of Siem Reap on Friday to meet Myanmar President Thein Sein ahead of a gathering of top American businesses leaders.
The United States gave American companies permission this week to invest in resource-rich Myanmar. But Clinton made it clear they intend to continue pushing the country to improve its human-rights record.
— With files from The Associated Press
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