Kennaugh was caught in an incident with French sprinter Bryan Coquard (Direct Energie) just as the bunch were about to navigate the final climb on stage three of the race.
Kennaugh had been sat near the front of the group behind two Sky team-mates when the crash occurred. He fell heavily and was then seen clutching his right arm. He was subsequently taken to hospital for checks and was forced to abandon the race.
Team Sky doctor Derick Macleod said that checks confirmed the fracture. "Pete attended the Santa Barbara Hospital and X-rays confirmed his right clavicle is fractured," said Macleod.
"He lost some skin from his shoulder and elbow, but sustained no other injuries. He is now in a sling and getting pain relief and the plan is for him to return to the UK on Wednesday, with a view to seeing a shoulder specialist as soon as possible."
Sky will now look for stage wins in California with Dutch sprinter Danny van Poppel and seek a high overall placing with Norwegian Lars Petter Nordhaug, although he is currently in 30th place overall and 4-24 behind stage three winner and new race leader Julian Alaphilippe (Etixx-QuickStep).
Watch: Peter Kennaugh's Pinarello
Kennaugh has only just returned to racing after a spell of illness leading up to the Tour of California, and was Sky's leader in the race. Until further assessments are made, it is unclear when he will return to racing.
The Manxman's injury was a double blow for Sky on Tuesday. Just hours earlier they suffered a major setback at the Giro d'Italia when the British team's GC contender Mikel Landa quit due to illness.
Thank you for reading 20 articles this month* Join now for unlimited access
Enjoy your first month for just £1 / $1 / €1
*Read 5 free articles per month without a subscription
Join now for unlimited access
Try first month for just £1 / $1 / €1