"To protect the sovereignty of our country from any alien threats and changes, I'm obliged and responsible to put this issue to a referendum with the approval of the cabinet," Chen told a rally in the capital city.
He was referring to a clause in the law on the so-called "defensive referendum", which empowers the president to put to a popular vote "issues of national security concern" in the case of foreign threats.
China, which regards Taiwan as part of Chinese territory awaiting unification after it split from the mainland in 1949 at the end of a civil war, has repeatedly threatened to invade the island should it declare formal independence.
"Don't you worry. On 20 March (presidential election day) next year, we will be able to hold a referendum to safeguard the country's sovereignty and security," Chen said, without further elaboration.
Taiwan's opposition-dominated parliament on Thursday passed a law enshrining for the first time the right to vote on contentious issues including constitutional amendments, independence from China and changes to Taiwan's official name, flag and territory.
"We are gravely concerned about the situation surrounding Taiwan's referendum law"
China's Taiwan Affairs Office
But it also set hurdles that would make such changes hard to achieve in practice, which China's state media has called a "watered-down" law that was a "great defeat" for Chen.
Voted down were key clauses allowing popular votes on a completely new constitution and Taiwan's future - namely reunification with China or independence - that had been put forward by the ruling, pro-independence Democratic Progressive Party (DPP).
"We may not be satisfied (with the law), but we have successfully made the concept of referendum acceptable to all the people including those who used to oppose democracy and reforms," Chen added.
On Friday, China said it was "gravely concerned" about the law and warned it would never tolerate independence for the island, but it refrained from again threatening war.
"We are gravely concerned about the situation surrounding Taiwan's referendum law," said an unnamed spokesman for the Cabinet's Taiwan Affairs Office.
"We are paying close attention to the development of the situation."