Continue the path to the next area. To the left, there is a block to MOVE! but you need to DIG! the path free first. Then move the block so it sinks into the floor. Cross the gap, DIG! your way to the chest.
After the next battle ground there's a statue, some colored blocks and a closed cannon. There is a pattern on the floor next to the cannon that you have to match by playing around with the button and the statue. Take the cannon after you've unlocked it.
Take the cannon back and follow the story path. You pass a battle ground and go through a big tunnel / corridor to a next big area with a lot of blocks to SMASH! Notice, there is a block to push down and a green down area, where you can go down. Do so. The goal is to push the block onto the green platform, then onto the yellow platform and then onto the red square button to reach the next chest. Use the buttons to do so.
Continue the story path, cross a battle area with Challenge 1 and get to a platform with a lot of blocks to SMASH! SMASH all blocks in the bottom right corner. A blue button will appear and when you hit it, an elevator will come up with the chest.
Also in this area, after you SMASH!ed all the blocks, you'll see that you can DIG! a path for a block to push down. Do so. Also, there is a green arrow to climb down not far. Climb down to get to the Chest.