Srikanth fought valiantly against the world number one Lee before running out of steam to lose the contest 19-21 18-21 in 42 minutes at the Singapore Indoor Stadium.
Lee play qualifier Simon Santoso of Indonesia in the summit clash tomorrow.
Santoso stunned fifth seed Pengyu Du of China 16-21 21-17 21-17 in the other semifinal.
Against Lee, Srikanth made a bright start and gave his fancied opponent a run for his money from the beginning.
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But just when it seemed Srikanth will pocket the first game, pressure got the better of the Thailand Open champion Indian as he committed a number of unforced errors -- four in succession -- to hand the game to Lee.
With a 1-0 lead under his belt, Lee started to play more freely in the second game and took a huge 15-8 lead before extending the margin to 19-12.
Lee, however, kept his composure and sealed the affair in his favour by pocketing the next two points.
With Srikanth's loss, India's challenge came to an end in the USD 30,00,000 tournament.