This paper proposes a novel hybrid algorithm combining chaotic Jaya (CJaya) and sequential quadratic programming (SQP), namely CJaya-SQP, for solving the coordinated design problem of static var compensator (SVC) and power system stabilizers (PSSs). The CJaya serves as a global optimizer and the SQP as a local optimizer for fine-tuning the solution. In the proposed algorithm, chaotic maps are used to generate the initial solutions and control the search process. In order to prove the performance of the CJaya-SQP, a set of benchmark optimization problems is used where the results are compared with those of the basic Jaya and other recognized algorithms. The proposed optimization method is then applied for the optimal tuning of PSSs and SVC controllers in such a way that damping ratios and damping factors of the electromechanical modes are optimally improved. To illustrate the robustness of the CJaya-SQP-based coordinated PSSs and SVC controllers, the four-machine, two-area system is used. Eigenvalue analysis and nonlinear time-domain simulation vividly show that the CJaya-SQP-based coordinated controllers improve greatly the system’s dynamic stability with a robust damping of local and inter-area power oscillations.