Elsewhere, Max Verstappen and Pierre Gasly finished fifth and sixth respectively for Red Bull. However on their last runs the German pulled out all the stops, and with a time of 1min 10.240 seconds left Hamilton, who made a mistake at the hairpin on his last lap, in his wake, two-tenths down.
Canadian Lance Stroll had a miserable day.
"I had to pace myself a bit in the first two corners because getting the tires to grip up wasn't straightforward, but after that it was just a joy", he said.
Leclerc, who had been swapping fastest times with Vettel for much of the weekend and in the first two parts of qualifying, said he struggled with the auto when it mattered and did not have an explanation.
Vettel won from pole position in Canada past year and Mercedes have suggested the high-speed circuit could again favour Italian rivals whose season has yet to get into gear.
Though the results are sure to boost the hopes of Ferrari and its fans, practice times don't necessarily point to how the team will fare during Saturday's qualifying and Sunday's race.
Mercedes had said before the weekend that they expected a strong challenge from Ferrari on Montreal's Circuit Gilles Villeneuve.
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Attempting to complete that session on the more durable medium tyre so they could start the race on it - as Ferrari and Mercedes did - Verstappen was not quick enough.
Vettel will be hoping to exert calm control from the front and make an inroad into the 55 points by which he trails championship leader Hamilton.
Ferrari have chalked up 14 Canadian Grand Prix victories - more than any other team. The German won from pole position from qualifying in Montreal past year.
"It's definitely not great to watch the session from the garage; it feels like sitting in the headmaster's office, wishing to be back in class". The back of Stroll's Racing Point auto erupted in flames and smoke due to a hydraulic fluid leak. The auto felt good and I think we can carry that into the race.
"This is one of the tracks where you need to dare going very close to the walls in numerous places", said Vettel, who also won in Montreal in 2013 with Red Bull.
"So we need to work very hard". Hamilton was fastest in Friday's early practice, but damaged his auto when he hit the wall in the afternoon.
The Ferrari star will start at the front of the grid for the first time since Germany a year ago.
Another driver who scored his first win in Canada is Daniel Ricciardo, when he triumphed for Red Bull in a dramatic 2014 race.