Kanu, speaking to Goal, believes the Gunners should have kept Iwobi, who was at the club since he was eight years.
Iwobi left the Emirates on deadline day, in a deal that could eventually total £40million ($49m).
But for Kanu, the decision to cash in on the 23-year-old, was a wrong one.
“I would say they made a mistake, 100 per cent.
“Why they let him go, I don’t know.
“He’s a boy who, in and out, is Arsenal. He always wanted to do his best for the club. He loves the club, but not only that he can play football.
“What he brings week in, week out, the fans need to appreciate that.
“I think he is still young and those are the type of people you want in the team, people who grew up here, who knows everything about the club and wants to die for the club.
“He was one of them, so for us to lose him and to let him go, was a shock. I couldn’t really believe we did it, but that’s football,” he said.