Scores of emergency responders combed the rubble of the lower floors of the 12-storey Yun Tsui apartment block, which housed the Beauty Stay Hotel and had pancaked during the quake, leaving the building leaning at a 50-degree angle which complicated the rescue effort due to fears of an imminent collapse.
"The rescue mission was difficult as the space is narrow but rescuers continued to work hard and finally found the Canadian couple," a government statement said.
The couple, who were Hong Kong-Canadian, were identified as Freda and Peter So.
The new discovery means that nine of the 12 people killed when the quake hit the eastern tourist city of Hualien Tuesday perished in the Yun Tsui building.
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The remaining missing, a Chinese family of five, were also hotel guests there. They were sharing a room on the second floor of the building, officials said.
National Fire Agency search and rescue team leader Liang Kuo-wei told AFP it had taken 12 hours to break through to the second-floor hotel room where the Canadian couple were staying.
The powerful tremor left a handful of buildings badly damaged -- some tilting at precarious angles -- as well as roads torn up.
Three of the partially collapsed buildings have been cleared of people and are now being demolished "in order to maintain safety for the public," Hualien mayor Fu Kun-chi said, adding that authorities are probing possible construction irregularities.
The daughter of victim Chiang Chen-chang, who was employed at the Beauty Stay Hotel, said she saw her father's name on the missing persons list during her shift working at the emergency operation centre.
Hualien is one of Taiwan's most popular tourist destinations as it lies on the picturesque east coast rail line and near the popular Taroko Gorge.
But the mountains that rise up behind the city -- and bestow Taiwan's east coast with such majestic beauty -- are a testament to the deadly tectonic faultlines that run through the island.
The government said 16 foreigners sought medical treatment for minor injuries.
Five people were later found guilty over the disaster, including the developer and two architects, for building an inadequate structure.
The island's worst tremor in recent decades was a 7.6- magnitude quake in September 1999 that killed around 2,400 people.
That quake ushered in stricter building codes but many of Taiwan's older buildings remain perilously vulnerable to even moderate quakes.
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