The move came one day after he gave up six runs in the 10th inning of an 11-5 loss to Minnesota.
Chen, 37, is 2-4 with a 7.45 ERA in 13 games this season. He was in the Royals' rotation when the season began but went on the 60-day disabled list with a back injury.
"It was hard," manager Ned Yost said of his meeting with Chen. "That wasn't Bruce's role. Bruce is a starter. He fares better as a starter, but we've got starters that are going really well right now. There just wasn't a spot for him. We needed somebody that could fill that role down there and be more accustomed to it.
"He's been here a long time. I've watched him win a bunch of ballgames. His presence on the field well as well off the field has been great for all of us."
The AL Central-leading Royals recalled right-hander Louis Coleman from Triple-A Omaha to take Chen's spot in the bullpen.
Chen won 35 games from 2010 to '12. He had a 47-43 record with a 4.53 ERA in six seasons with Kansas City.
Yost acknowledged Chen's clubhouse leadership was invaluable.
"He was always there to uplift you," Yost said. "If you had a bad game, he would be the first one there, saying you're going to get them tomorrow. He's a guy that everybody looked to, to kind of lighten the mood in all situations. He's going to be missed."
Chen made his major league debut in 1998 with Atlanta and has a career record of 82-80 with a 4.91 ERA. He also has pitched for Philadelphia, the Mets, Montreal, Cincinnati, Houston, Baltimore and Texas.
Chen's salary for 2014 is $3.25 million, with an option of $5.5 million for next year and a $1 million buyout.
Coleman was 2-1 with seven saves and a 3.86 ERA in 28 games with Omaha, striking out 53 in 39 2/3 innings. He was 1-0 with a 7.48 ERA in 20 relief appearances earlier this season with Kansas City.