Rios, an Australian Open finalist earlier this year, has moved up from seventh to third ion the world. He was always in charge in this first meeting between the two left-handers after Rusedski's usually potent serve let him down in the opening set, with only 33 per cent of his first serves finding the target.
The British No 1 managed to defend his serve in the second set and it went to a marathon 17-15 tie-break with Rusedski clinching it on his sixth set point, but he struggled to break Rios's serve and lost the third set 7-4 on another tie-break.
The fourth set went with serve until a double fault, Rusedski's 12th of the match, gave Rios a 5-4 lead. The Canadian-born Briton did not break Rios's serve in the match, which the Chilean won on his first match point.
Rusedski reached the final by beating the former world No 1, Thomas Muster, 7-6, 6-1 on Saturday, when he put 73 per cent of his serves in play. Rusedski had the additonal satisfaction of hitting the fastest serve on the ATP Tour. Just 24 hours after setting a new best of 146 mph, the left-hander slammed down a 149 mph delivery in the 11th game of the Muster match.
In his semi, Rios beat the American newcomer Jan-Michael Gambill, who had defeated Jim Courier and Andre Agassi in earlier rounds, 7-6, 6-3.