South Korea took advantage of some Canadian giveaways to jump out to an early two-goal lead. Jeon Ga Eul picked up a loose ball and opened the scoring in the 19th minute before Ji So Yun added another goal in the 29th minute.
In the 55th minute, Jung Seol Bin beat Karina LeBlanc from 25 yards out to make it a three-goal game. Nichelle Prince of Ajax, Ont., scored her first senior goal for Canada in the 77th minute.
Canada is playing without star striker Christine Sinclair of Burnaby, B.C., who is serving a four-game suspension. Head coach John Herdman said Canada is integrating young players and working on a new style of play.
"It's a setback if you look at the result, but there were some really good things performance-wise," he said. "The players worked hard and looked to develop the game through possession as we've asked."
Canada, which opened with a 1-0 victory over the host side, fell to third in the four-team round-robin with the loss.
The Canadians still have a chance to win the tournament, but need a victory over first-place Norway on Wednesday to have a chance. Norway leads with six points, South Korea and Canada are next with three points apiece and winless China is fourth.
South Korea has the edge on Canada due to goal differential.