With five points after four matches, Malaysia are out of the running to play in the final, but can salvage some pride by winning against Pakistan and India in the next matches to play for the bronze.
Playing in front of another capacity crowd, Malaysia played a fast-paced game but after 15 minutes, they failed to break the duck as Canada defenders played a robust game.
The national players needed a win, at any cost, to make sure they finish among the top-four in the 25th Edition.
But it was Canada who took the lead off their skipper Scott Tupper, who converted a penalty corner in the 21st minute.
Malaysia were rewarded for pushing forward in numbers, when Shahril Saabh perfected a penalty corner set-piece in the 29th minute to draw level and enter the half-time dressing room with some breathing space.
After the break, Shahril's shot at goal was deflected in by Nabil Fiqri in the 31st minute, and Malaysia were back in the match.
However, in the last five minutes of the third quarter, Malaysian defenders started taking unnecessary risks and were punished by Matthew Guest in the 45th minute -- 20 seconds from the break hooter.
The score stood, and Malaysia held the the Olympic-bound Canadians.
"Both the teams came out looking for a win to move higher on the standings, but we missed too many crosses across the goalmouth that forced us to share points.
"However, it was another good game from my players and we are still within our target of finishing among the top four in the tournament, provided we get the better of Pakistan tomorrow (today) and India in our final pool match," said Malaysian coach Stephen van Huizen.
Australia edged New Zealand 1-0 to place a foot in the final of the Azlan Shah Cup in Ipoh Tuesday.
Jamie Dwyer, who will be playing in his fourth Olympics in Brazil, made the difference with a 22nd minute penalty corner goal.
Defending champions New Zealand tried to steal a point from the World N 1 by removing their goalkeeper in the last four minutes of the match, but failed to score off the four penalty corners they won.
In another match, India hammered Pakistan 5-1 with goals from Manpreet Singh (4th), Sunil Sowmarpet (10th, 41st), Talwinder Singh (50th), Rupinder Pal Singh (54th),
The Pakistan consolation was scored by Muhammad Irfan (7th).
P W D L F A Pts
AUSTRALIA 4 4 0 0 15 2 12
INDIA 4 3 0 1 11 8 9
N ZEALAND 5 2 2 1 13 9 8
CANADA 5 1 2 2 8 10 5
MALAYSIA 4 1 2 1 10 13 5
PAKISTAN 4 1 0 3 7 15 3
JAPAN 4 0 0 4 6 13 0
RESULTS: Australia 1 New Zealand 0, Pakistan 1 India 5, Malaysia 2 Canada 2.
April 13: New Zealand v India (4pm), Australia v Japan (6pm), Malaysia v Pakistan (8.35pm).
April 14: REST DAY.
April 15: Japan v Pakistan (4pm), Australia v Canada (6pm), Malaysia v India (8.35pm).
April 16: Classifications and Final.