The warning comes after the department received a report of a recent incident where a three-year-old swallowed two magnet rods from a Mega Brands Magnetix Magnetic Building Set.
The child received medical care quickly and didn't sustain any injuries.
But the department says if a child swallows more than one magnet, they can be drawn together in the intestinal tract. This can cause intestines to twist and create blockages or produce tears in intestinal walls.
Mega Brands, which was acquired in April by U.S. toy giant Mattel for US$460 million, sold the Magnetix building sets in Canada between 2006 and 2009.
An earlier version of the toy sold before April 2006 was recalled in Canada in 2007 following several serious injuries in the United States and one fatality involving a child in 2005.
The company redesigned the magnetic toy to encase the small magnets in plastic. But Health Canada said many of the magnetic building parts were small enough to be swallowed by children.
The products met the safety requirements at the time of sale, but those standards have since changed, the department said Wednesday.
"Today, certain toys with powerful magnets are considered a serious danger to children of all ages."
Health Canada says consumers who have Mega Brands Magnetix Magnetic Building Sets should discard them in a way so that they cannot be resold or redistributed.