However the deficit, which followed a $335-million shortfall in November, came in much smaller than the $1.2 billion that economists had expected, according to Thomson Reuters.
Economists noted that strong exports of manufactured goods and mineral products offset a decrease in the value of energy exports due to the drop in oil prices.
"While a decline in the trade balance was expected for December, today's report provides a somewhat pleasant surprise as the underlying picture was more positive than expected," TD Bank economist Brian DePratto said in a note.
Statistics Canada said the deficit increased as merchandise imports rose by 2.3 per cent in December to $44.7 billion as eight of the 11 categories tracked posted gains.
Meanwhile, exports rose 1.5 per cent to $44.1 billion as they also posted increases in eight of the 11 sections, led by metals and non-metallic mineral products.
Import volumes were up 2.8 per cent, while prices were down 0.5 per cent. Export volumes rose 3.5 per cent, while prices declined 1.9 per cent.
Royal Bank economist Josh Nye noted the strength in exports likely reflects the positive impact of a weaker Canadian dollar and stronger U.S. growth.
"Looking ahead, low oil prices will continue to weigh on nominal exports but a weaker Canadian dollar and stronger U.S. demand should help export volumes pick up further with trade expected to make a solid, positive contribution to growth in 2015," Nye wrote.
"This will be an important offset to the drag from lower investment in the oil and gas sector, supporting GDP growth close to potential in the first half of the year."
The Bank of Canada unexpectedly cut is key interest rate by a quarter of a percentage point to 0.75 per cent last month as it worried about the impact of low oil prices.
Many economists have since suggested that the central bank may cut the rate at its next rate announcement in March.
Regionally, imports from the United States rose 0.8 per cent to $30 billion in December, while exports were up 0.6 per cent to $33.1 billion, narrowing Canada's trade surplus with that country from $3.2 billion in November to $3.1 billion in December.
Exports to other countries increased 4.5 per cent to $11.0 billion in December, while imports were up 5.3 per cent to $14.7 billion, widening the trade deficit with the rest of the world from $3.5 billion in November to $3.8 billion in December.
For the full year, Statistics Canada says imports were 7.6 per cent higher in 2014 than in 2013, while exports increased 10.3 per cent.
That pushed Canada's annual merchandise trade balance with the world from a deficit of $7.2 billion in 2013 to a surplus of $5.2 billion in 2014.