Prepare the spice paste by removing any stems from dried chilies, then combine the shallots, galangal, 3 stalks white lemongrass, garlic, ginger, and seeded dried chilies in a food processor; blend until smooth.
Heat the oil in a large skillet or wok over medium heat, then add the spice paste, cinnamon stick, cloves, star anise, and cardamom pods and stir-fry until fragrant, about 2–3 minutes.
Add the cubed chicken and the prepared lemongrass strips (white part) to the pan and stir to coat the chicken thoroughly with the spices.
Pour in the coconut milk and 1 cup water, bring to a gentle simmer over medium heat, and cook, stirring frequently, until the chicken is almost cooked through, about 8–10 minutes.
Stir in the bruised kaffir lime leaves, toasted grated coconut (kerisik), and sugar; adjust salt to taste.
Lower the heat to low, cover, and simmer gently for about 30 minutes or until the chicken is tender and the sauce has reduced and thickened; uncover near the end if you want the sauce to dry up more.
Taste and adjust seasoning with more sugar or salt if needed, then serve immediately.