After clinching his fourth pole position of the season, Vettel was delighted with the response after a tough Friday practice in Canada.
Four-time world champion Hamilton has had six poles and six wins overall in Canada and arrived seeking a record-equalling seventh victory.
When asked if he felt Red Bull had the pace for pole after seeing teammate Daniel Ricciardo go quickest in Q2, he said: "I knew we had a good vehicle, but I wanted to wait and see how competitive we would be in Q3".
"Today we're not the favourites", Vettel said.
Ferrari's Sebastian Vettel dominated the Canadian Grand Prix to re-take the championship lead as Lewis Hamilton could finish only fifth for Mercedes. "My laps weren't good and it just didn't quite come together for me", he said.
The title race remains finely balanced but Ferrari will take great encouragement from victory at a circuit where Mercedes have been dominant, with Hamilton taking pole and winning for the last three years in Montreal.
The Ferrari driver was back at his best in Montreal, doing enough to beat the Mercedes of Valtteri Bottas and start at the front of the grid in Sunday's race, setting a best time of 1m10.764s. Both cars were badly damaged but the drivers escaped uninjured.
Vettel ended Q1 on top ahead of the Finn with Hamilton third, but it was tense for McLaren as twice former champion Fernando Alonso squeezed into Q2 at the end in 14th place ahead of team-mate Stoffel Vandoorne. We knew in Q3 it would be a bit harder for us but to be still so close was good.
He then shaved 0.012 seconds off that time on his second run using the hypersoft Pirellis to make sure of pole position.
"In the race, it all calms down a bit, which is why in general we are always a bit more competitive".
It is his third win this season, and a strong riposte after Ferrari failed to perform at their best in Spain and were beaten by Red Bull in Monaco. "Merc are going to be quick tomorrow - I would say they're the ones to beat at the moment".
"We were briefly talking about what we wanted to do, trying to figure everything out". On a track like this when you have to attack kerbs so much it's important you feel at home and have confidence to play around and I think then you can extract a bit more from the vehicle.