World number two Chen, who had said before the final that Lee was not unbeatable, won 21-19 21-19 to secure his first medal at the world championships.
Having also lost two Olympic finals, Lee's defeat meant that his wait for a first major title goes on.
The first set was a cagey affair with Chen edging it 21-19 and he sprang out to an early lead in the second.
Lee fought back but Chen was not to be denied.
There was also an upset in the women's final as ninth seed Carolina Marin came back from a set down to defeat world number one Xuerui Li.
Marin lost the first set 21-17 but the European champion roared back to win the next two 21-17 21-18 and become the first Spaniard to win a badminton world title.
China's Qing Tian and Yunlei Zhao claimed the first title on Sunday in the women's doubles, cruising to victory over compatriots Xiaoli Wang and Yang Yu 21-19 21-15.
South Korean outsiders Sung Hyun-ko and Baek Choel-shin surprised countrymen Yong Dae-lee and Yeon Seong-yoo to win the men's doubles, the 12th seeds ousting their fifth-seeded rivals in a tight match 22-20 21-23 21-18.
(Reporting by Philip O'Connor, editing by Ed Osmond)
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