Belgium rode on their goalkeeper Loic van Doren's superb display in the shoot-out to register the upset win after the two teams failed to break the deadlock in regulation 70 minutes.
Van Doren made two brilliant saves in the shoot-out to deny Germany's Philip Schimid and Tim Herzbruch.
The Germans came into the match as favourites but it was Belgium who controlled the proceedings and created more chances for most part of the game.
In the shoot-out, Germany replaced their regular custodian Kuppers for shoot-out specialist Niklas Garst, but it did not help the defending champions as he could pull off just one save.
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For Belgium, Nicolas Poncelet, Arthur de Sloover, Henri Raes and Robbert Rubens scored in the shoot-out while Johannes Grobe, Ole Thies Prinz and Constantin Staib were the successful converters.
Earlier in the day, Japan eked out a narrow 2-1 win over Asian rivals Korea in the 13th-14th place classification match, while Egypt defeated Canada by identical margin to avoid the wooden spoon.
In the match to avoid the wooden spoon, Canada surged ahead in the 35th minute through a penalty corner conversion by Rohan Chopra before Egypt found the net twice in the second half through Mohamed Gadelkarim (58th) and Ahmed Elganaini (67th).