Li, who also lost in the world championships final this month to Spain's Carolina Marin, consistently put shots long or in the net against a stronger Wang, the world number three.
"I made a lot of mistakes in the third game – Wang was playing well and I couldn't beat her," said Li.
Wang said Incheon brought her good luck.
"I won the world junior championships in Incheon in 2006 and have played here many times, always with good results. Korea is a very lucky place for me."
Wang had the edge on Li going into the match, having won seven out of 12 of their previous clashes.
Li took the first set 21-11 but Wang came back with a barrage of smashes and a lucky net cord shot to take the second 21-17. A frustrated Li couldn't find her form in the third, crumbling 21-7.
Earlier, Indonesia's Tontowi Ahmad and Liliyana Natsir prevented an all-Chinese final in the mixed doubles after thrashing the world number three pair in two games.
Second seeds Ma Jin and Xu Chen were no match for the third seeds and went down 21-12, 21-10 in their semi-final.
They struggled to put points on the board in the face of fast and powerful attacking play, with Chinese coach Li Yongbo looking on impassively as they crashed to defeat.
World number one mixed doubles duo Zhang Nan and Zhao Yunlei had an easier ride against unseeded Indonesians Praveen Jordan and Debby Susanto, winning 21-19 21-17 in their semi-final.
China last won the Asian Games mixed doubles title in 2006, but Indonesia have not been champions since 1982.
Indonesian women's pair Greysia Polii and Nitya Krishinda Maheswari scored a historic victory in their doubles final yesterday where they beat Japan in two games, the country's first Asiad win in that event since 1978.
China are out of the men's doubles event and lost in the men's team competition, so can only win a maximum four gold medals compared to their five-gold haul in 2010.