He had turned 80 exactly a week ago and is survived by two sons. He died at the Apollo Hospital where he was admitted three months ago.
"He was suffering from multiple myloma (blood disease), Dr Rakesh Chopra, senior consultant (oncology), who was attending on him, told PTI.
Condoling his death, Prime Minister Manmohan Singh described him as a truly secular nationalist who was committed to people's welfare and national development.
The Congress and Bharatiya Janata Party also condoled his death, saying his death was a huge loss.
Chandra Shekhar, who was elected to the Lok Sabha for the eighth term in the 2004 elections, served as prime minister for a brief period between November 10, 1990 and March 6, 1991. He had served one term in Rajya Sabha to which he was elected in 1962.
Known for courage of conviction and sticking to principles, the socialist veteran held no office before he split with V P Singh and floated a rebel outfit Janata Dal (Socialist) at the height of anti-reservation agitation in 1990 and formed a weak minority government with outside support of Congress headed then by the late Rajiv Gandhi.
His government was short-lived when the Congress decided to withdraw support in the wake of controversy over spotting of two intelligence operatives outside 10, Janpath in the capital which the Congress felt was an attempt to snoop on Gandhi.
Chandra Shekhar resigned on the floor of the House when the motion of thanks to the President's address came under the threat of defeat from Congress.
A veteran of the socialist vintage, he was brought into politics by Acharya Narendra Dev. He joined the Praja Socialist Party in the early fifties before he joined Congress in 1965 where he effectively pleaded for policies in support of the downtrodden.
He headed a ginger group of 'Young Turks' and opposed big monopolies and industrialist groups for whom he would not like government concessions.
Called an "angry" young turk, he was put behind bars by her party leader the late Indira Gandhi during the infamous emergency in 1975 for his blunt views. When he came out of it in 1977 new political equations emerged and the Congress was defeated.
Chandra Shekhar kept out of power in 1977 when the Janata Party dispensation swept the polls and he took over as its President. Even after the split in 1980, he continued to be its President till he merged it with Janata Dal in 1989.
After the break with V P Singh, he formed the Samajwadi Janata Party, which for a brief while reunited with Janata Dal, but went back to its original shape and was headed by him till the end.
The late former prime minister did not shy away from controversies and had famously said it was an inspector's job to get at the truth in the Bofors scam and not that of the prime minister.
Chandra Shekhar's views came under attack from non-Congress parties, saying he was under compulsion to speak like that because of the support he was getting from Congress party to remain as prime minister.
He also did not disown friends, however, controversial they may be -- be it godman Chandraswamy or a don-turned-politician who was elected from the coal belt in Dhanbad.
His funeral will take place on Monday at 4 pm, his personal secretary R B Yadav said.