The 18-year-old tested positive for hydrochlorothiazide, a diuretic, on August 8, the same day she took part in the women's 100m butterfly final, finishing fourth.
She is banned from competing for two years, from August 11 this year to August 10, 2018, FINA said in an announcement Saturday.
Diuretics increase urination rates and can be used as "masking agents" to hide the presence of performance-enhancing substances that are screened for in doping tests.
Chen first made headlines when she won gold in the 100m butterfly and 50m freestyle events at the 2014 Asian Games, with times that set championship records.
She also won gold at the 2015 World Championships with the Chinese 4x100m medley relay team.
The country's swimmers have previously been embroiled in doping controversy, with athletes at Rio calling China's star swimmer Sun Yang a "drugs cheat".
Sun served a three-month doping ban in 2014, which was only announced retrospectively by Chinese authorities.
In March, the Chinese Swimming Association revealed that six of the country's swimmers had tested positive for drugs in the preceding months, including three for hydrochlorothiazide. Two of the six athletes received only warnings.