Sagan was initially disqualified from the stage, penalised 30 seconds on the general classification and 35 points from the green jersey competition after he and Cavendish collided within the final 250m of the race to Vittel.
But commissaires later decided to boot the Slovak superstar from the 104th edition for an "irregular sprint", citing judicial powers in UCI article 12.1.004.
"We have decided to disqualify Peter Sagan from the Tour de France 2017 as he endangered some of his colleagues seriously in the final metres of the sprint," an official told media.
Sagan was sprinting for line honours as Cavendish appeared to move up in-between him and the barriers.
The Manxman's sprint looked to be interrupted when Sagan threw out his elbow in what proved a costly display of argy-bargy. Sagan stayed upright but Cavendish hit a barrier and came down, John Degenkolb (Trek-Segafredo) riding over his face before flipping onto the road, with Ben Swift (UAE Team Emirates) also falling hard.
Sagan, a leader at Bora-Hansgrohe, went to Cavendish's Dimension Data bus in the immediate aftermath of the stage to reportedly apologise. A team spokesman said they would look at race vision and speak to all related parties before making a statement.
Cavendish heard him and then retreated inside the Dimension Data bus to be treated by medics and was later taken the hospital to have checks on his wrist and collarbone.
Outside, his sports director, Roger Hammond fumed, labelling the incident a "disgrace". He and performance manager Rolf Aldag later stormed away to remonstrate with commissaries.
"I've been onto the bus just to check Mark's condition. I'm not really sure what conversations they [Cavendish and Sagan] had, but if I was Sagan I would apologise for that," Hammond said.
The 30-time Tour de France stage winner, speaking to a swarm of media outside his team bus, had complained of a mangled finger, and sore shoulder, the same one he said he landed on in a crash with Simon Gerrans during the 2014 Harrogate Grand Depart.
Cavendish left the bus with a medic and his arm in a sling.
"I'll definitely need stitches in this finger, it's bleeding a lot," he told reporters. "A crash is a crash. I'd just like to know about the elbow."
The 32-year-old was diplomatic when asked if he agreed with Hammond that Sagan should be disqualified.
"I'll leave that to the jury. I'd like to speak with Peter. To comment on stuff, it's not really right for me," he said.
Dimension Data has now confirmed Cavendish has fractured his right shoulder blade and has been forced to withdraw.
Cavendish in the official team statement said he was obviously 'massively disappointed' with news of the fracture.
“The team was incredible today. They executed to perfection what we wanted to do this morning.
"I feel I was in a good position to win and to lose that and even having to leave the Tour, a race I’ve built my whole career around, is really sad."
In a late breaking official statement Bora-hansgrohe has confirmed it has officially protested the jury's decision, stating Sagan doesn't agree he caused the crash.
“In the sprint I didn’t know that Mark Cavendish was behind me. He was coming from the right side, and I was trying to go on Kristoff’s wheel," the world champion said.
"Mark was coming really fast from the back and I just didn’t have time to react and to go left. He came into me and he went into the fence.
"When I was told after the finish that Mark had crashed, I went straight away to find out how he was doing. We are friends and colleagues in the peloton and crashes like that are never nice. I hope Mark recovers soon."
