I'm not sure how much the exact price of the phone matters to the OP's particular situation. My understanding is that whether or not the phone is $650 or $200, she has an issue with someone purchasing something that expensive.
To me, she either needs to:
a) Try to get past the discomfort as having an SO buy expensive gifts is not inappropriate
b) Realize that this is something that she just can't accept and let her SO know that.
This is more than just an issue of this one gift, this one time. Surely, this guy is going to buy gifts for her in the future and if he's willing to spend the money to get her something she needs and wants now, then he's probably going to want to get her something equally as or more expensive in the future. The OP needs to figure out what her limits are and communicate them to him. It's not an unreasonable conversation for a couple to come up with "rules of engagement" on gift giving. DH and I had this discussion when we were dating and the rules still apply today...many, many years later.