The British pair are now a lap down in the overall on Cameron Meyer and Callum Scotson, having suffered a disappointing end to the night as Kennaugh punctured in the final Madison.
Kennaugh scored early points in the 40km Derny race that opened the Six Day events, but the Manx riders were unable to score in the following Madison chase.
Their major success of the evening came in the 10km points race, which Cavendish won to the joy of the home crowd.
But ultimately the night didn't end well for them, having gone on the attack to try and gain a lap in the concluding Madison, Kennaugh suffered an untimely puncture and was forced to wait an extended period for a replacement.
While they still secured third at the end of that event, Cavendish and Kennaugh finished with a lap lost to Dutch pair Yoeri Havik and Roy Pieters as well as Meyer and Scotson.
Day one leaders and two-time London Six Day champions Moreno De Pauw and Kenny De Ketele also lost ground in the defence of their title, sitting in third place overall at one lap down.
London Six Day 2017, day two overall standings
1 Cameron Meyer & Callum Scotson (Aus) 148 points
2 Yoeri Havik & Roy Pieters (Ned) 144
3 Kenny De Ketele & Moreno De Pauw (Bel) 168 (-1)
4 Alberto Torres & Sebastien Mora Vedri (Esp) 165 (-1)
5 Mark Cavendish & Peter Kennaugh (GBr) 154 (-1)
6 Morgan Kneisky & Benjamin Thomas (Fra) 115 (-1)
7 Niklas Larsen & Casper Von Folsach (Den) 127 (-2)
8 Ollie Wood & Mark Stewart (GBr) 113 (-2)
9 Casper Pedersen & Marc Hester (Den) 100 (-2)
10 Theo Reinhardt & Kersten Thiele (Ger) 89 (-2)
11 Felix English & Mark Downey (Irl) 97 (-3)
12 Nick Stopler & Melvin Van Zijl (Ned) 53 (-3)
13 Steven Burke & Chris Latham (GBr) 82 (-4)
14 Wojciech Pszczolarski And Adrian Teklinski (Pol) 47 (-5)
15 Sebastian Schmiedel & Maximilian Beyer (Ger) 37 (-6)
16 Vajtec Hacecky & Alois Kankovsky (Cze) 35 (-7)
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