Sudha, the inaugural winner of 3000m steeplechase at the Asian Games, improved upon her national record of 9:55.67s, which she set while winning the gold medal in Guangzhou, in more than six seconds to 9:49.25s.
However, she barely missed the Olympic B-standard qualification mark of 9:48.00 by a whisker.
"It was her first competition of the season. In fact she can able to achieve the Olympic A-standard of 9:43.00 by the time she compete in her next meet," said her coach Jasvinder Singh Bhatia.
Another Indian athlete, Sinimole Paulose, finished 14th in women's 1500m with a season's best timing of 4:11.25s.
It was Sinimole's second best timing of career after a 4:10.51s timing set in Chennai six years ago.
The 'B' standard qualification mark for London Games in this event stood at 4:08.90s.
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Shanghai was the second stop in the 14-leg Samsung Diamond League series this year.
In the first leg at Doha on May 11, two Indians Vikas Gowda and Tintu Luka took part.
While Gowda finished sixth in discus throw with a performance of 64.10m, Tintu had to satisfy with eighth position in 800m with a timing of 2:01.09s.