The arrests were enforced by the Royal Canadian Mounted Police after carrying out searches of two residences on Ottawa's west side, and officers said they were executing more searches and would carry out more arrests.
The arrest of Misbahuddin and Ehsan Ahmed came after the police had kept them under surveillance for over two years in a project codenamed 'Operation Samosa'.
Though the RCMP released no names or identities of the suspects, but sources confirmed their names as Misbahuddin and Ehsan.
They said Misbahuddin Ahmed, who was categorised as the ringleader, is believed to have been trained in Pakistan and Afghanistan and investigations involved a "bomb plot".
"These guys were doing more than just talking about terrorism. They were planning it," a police source was quoted as saying by the Vancouver Sun newspaper.
The Canadian police had to break the surveillance operation as one of the suspects was preparing to travel abroad, the paper said.
Misbahuddin, the sources said, had worked for two years as a general radiography technologist at Ottawa's Hospital Civic Campus.
This is the second major terror plot to be unearthed in Canada since 9/11. In June 2006, a group of young Muslim men dubbed as 'Toronto 18' were rounded up and prosecuted for planning to attack downtown targets and a military base.
"A vehicle, several computers, hard drives and scanners were seized from one of the residences," the police said.
The police has scheduled a press conference later in the day to give more details about the plot as security experts warned that the plotters could have been planning to blow up hydroelectric plants and transmission lines to hit the US.
"There are ways of attacking the US through Canada. The whole energy for New York comes from Quebec," they said.
