The 21-year-old from Almora got off to a good start winning the opener against his seeded opponent but failed to maintain the momentum to eventually go down 21-13, 17-21, 13-21 in a contest that lasted an hour and 15 minutes.
Kunlavut will next face the winner of the other semi-final between eighth seed Hong Kong Cheuk Yi Lee And Toma Junior Popov of France.
Lakshya entered the semi-finals for the first time this season, after coming close to the Indonesia Masters, where he came out in the quarter-finals.
His ranking fell to 23 from a career high of sixth due to a string of below-par performances this year.
It was neck and neck between the two commuters early in the opener before Lakshya took an 11-6 lead at the break.
The Thai came out strong after the break and won four straight points to cut the lead to 11-10. But Lakshya improved his game just in time to take a five-point lead and closed the opener quite easily without giving his opponent any chances.
Game two was an even match between the two players as they battled it down to 10 points before Kunlavut used his cross kicks to take a narrow 12-10 lead for the first. times of the match.
The Indian, however, forced his way through with the help of long rallies and precise drop shots as the battle continued between the two players.
But Kunlavut upped their game a few notches and bagged four straight points to win Game 2 and take the game decider.
In the deciding game, the momentum initially turned in Kunlavut’s favor as they raced to a 5-2 lead, but Lakshya clawed his way back as the two players fought tooth and nail.
The long rallies eventually took their toll on the Indian, who looked tired as the final game wore on, giving Kunlavut a substantial 18-12 lead and then Thai shut down the decider quite easily.
(With PTI inputs)