Minister Rob Nicholson blamed an “insensitive bureaucratic screw up” for the “absolutely ridiculous” decision to send the payment to the family of 22-year-old Justin Stark.
“I will take steps immediately to ensure that something like this should never happen again,” Nicholson said.
Stark took his own life in 2011 after returning to Canada following a seven-month deployment to Afghanistan.
“After all this mother has gone through, this is inexcusable,” opposition lawmaker Wayne Marston said in the Canadian parliament.
The controversy comes after recent criticism of Prime Minister Stephen Harper’s Conservative government over the assistance and support offered to Canadian soldiers and their families.