Sen, the reigning junior Asian champion, lost 15-21 19-21 in a 42-minute final match to bag the silver. He had beaten Shifeng in straight games in the quarterfinals of the Asian Championships in July but on Friday evening, it was the turn of the Chinese to turn the tables on the 17-year-old.
In both the games, Shifeng led all through and Sen was playing catch-up, eventually failing to succeed.
In the first game, Shifeng took an early lead and raced to 14-5 in no time. Sen made a fine recovery to narrow down the gap to 13-16 but he could not sustain it and Shifeng went ahead 18-13 and then made it 20-14 to have six game points. Though Sen saved one game point, the Chinese won the next one to pocket the first game in 17 minutes.
The second game was a closer fight than the first but the Chinese was leading all the time. Shifeng was ahead 8-7 initially but the gap widened to 12-7 before Sen made it 11-14. The three-point gap remained for some time before the Chinese made it 18-14 and then 19-14.
Sen made a last-ditch effort to save the match by winning three straight points but Shifeng still made it 20-17 to have three match points.
Sen was still not throwing the towel as he reeled off two straight points to make it 19-20 and just one point away from a deuce. But his Chinese opponent was a hard nut to crack as Shifeng won the final point to clinch the match and the gold.
The India admitting to committing early mistakes and gave full credit to his Chinese rival.
"He was very good and won the crucial points. I couldn't push myself tough I managed to prolong the inevitable," said Sen after his final.
"But I am happy to be the second Indian to bring back a medal in badminton from such an elite championship," he added.
It was a sort of a revenge for the Chinese whom the Indian had beaten in the quarterfinals of the Asian Championships earlier this year.
Congratulating on Sen's performance, Badminton Association of India president Himanta Biswa Sarma said, "Lakshya is a world class prospect and I would like to congratulate him on his medal winning performance at the Youth Olympics.
"I was particularly happy with the way he fought his way back in the semifinals and can certainly say that world badminton has a new rising star in him.
"He showed tremendous character and fighting spirit and this surely is not the end of it."
This was India's fourth silver along with three gold in the ongoing Youth Olympics.