"There was no single element" to allow for the detention of Mohamed Merah, Fillon told French radio.
"We don't have the right in a country like ours to permanently monitor without judicial authorisation someone who hasn't committed an offense... We live in a state of law."
French authorities have faced mounting questions over why Merah, a self-professed Al-Qaeda militant who was known to intelligence services because of his trips to Afghanistan and Pakistan, was not detained before he killed seven people, including three children.
But Fillon defended the intelligence services, saying that they "did their job perfectly well; they identified Mohamed Merah when he made his trips."
He said that intelligence agents "surveilled him long enough to come to the conclusion that there was no element, no indication, that this was a dangerous man who would one day pass from words to acts."
Merah "was interrogated, surveilled and listened to," said Fillon, adding that he was a man who "led a normal life."
"Belonging to a Salafist organisation is not an offense in and of itself. We cannot mix up religious fundamentalism with terrorism, even if we know there are elements that unite them."
Merah was killed by a police sniper on Thursday as he tried to shoot his way out of his apartment after a 32-hour siege.