Chanu, who finished fourth in the 53 kg category, tested positive for a diuretic. Her 63 kg team mate Pratima Kumari was named on Thursday among seven lifters to be caught during pre-Games dope testing.
"We have been informed by the International Olympic Committee that Chanu has tested positive for a diuretic," Harish Sharma, India's deputy team chief told Reuters from Athens.
Diuretics can be used to cover up use of other banned drugs.
Chanu, who was also caught for doping at the 1994 world championships, could now face a life ban for a second offence.
"The Indian Olympic Association is very concerned by the two doping cases and we will take strict action," Sharma said. India had entered four women lifters at the Athens competition.
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"We are very sad the two lifters have tested positive. We will definitely conduct an inquiry into how it happened," Indian Weightlifting Federation president H. J. Dora said on Friday.
The revelations have shocked India, coming two days after trap shooter Rajyavardhan Singh Rathore won his silver.
Indian newspapers and television led reports on Friday with the doping scandal, calling for an official probe to establish whether there was any systematic doping.
"Dopes Shame India" headlined the Asian Age. The Times of India story ran under the title: "After Glory, The Shame".
Of the other two women lifters in competition in Athens, Kunjarani Devi finished fourth in the 48 kg class and 63 kg lifter Karnam Malleswari, who won India's lone bronze in Sydney, pulled out after one failed snatch, citing a back injury.