I'm Canadian and I use it. It's a way of showing incredulity. Similar to "no way" or "Wow, I can't belive it." See definition #2 here: Urban Dictionary: shut up
Max: I passed the exam.
Sam: Shut up. That's excellent news.
Max: We have 30 pages of homework to do over the weekend.
Sam: Shut up. I can't believe it. Agh.