Faugheen has been ruled out of next month's Cheltenham Festival Champion Hurdle due to a sore suspensory.
The Willie Mullins' trained horse was looking to record back to back Champion Hurdle success at the prestigious National Hunt festival but will now miss out through injury.
Mullins confirmed the injury on his Twitter account stating: "Unfortunately #Faugheen will not run @Cheltenhamraces. He has a sore suspensory ligament."
Faugheen was an odds-on favourite across the board to claim back-to-back victories in the Champion Hurdle, having this season claimed stunning victories in both the Christmas Hurdle at Kempton and in the Irish Champion Hurdle at Leopardstown.
Annie Power has since been installed as the bookmakers' favourite for this year's race.
Faugheen was named Irish Horse of the Year in 2015.
Mullins revealed the injury came to light after he returned to work having enjoyed a short break following his Leopardstown triumph.
Mullins said: "We were just bringing him back. We had 28 days from yesterday to the Champion Hurdle and I said 'I better start doing a bit with him' and getting serious.
"He was just a little bit sore and our vet confirmed he had a small suspensory (injury) and I didn't want to risk going any further. I just took a view that it was better to stop now and he'd be back for next year.
"It's something like what happened to Hurricane Fly going to Cheltenham and he came back and was as sound as a pound for five or six years after.
"We think the prognosis is very good and he should be back as good as new next year."
Walsh has ridden Faugheen in 11 races, including at Cheltenham last year, and looked visibly shaken by the news of his enforced absence - moments after riding stablemate Annie Power to victory at Punchestown.
He told At The Races: "Willie told me on the way racing. It's disappointing.
"It's like someone whipping the ace out of the pack and handing you the rest of the cards."
Meanwhile, Nigel Twiston-Davies has said that he is "sad" Faugheen has been ruled out of the Champion Hurdle - but admits the title holder's absence in the Cheltenham showpiece does help the cause of his runner, The New One.
The Naunton trainer was looking forward to having another crack at Willie Mullins' brilliant performer with his stable star, who was an unlucky third in the blue riband to Jezki in 2014.
The New One was twice been beaten by Faugheen. Fifth in the Champion last year, he was seven lengths adrift in second place behind the Irish raider in the Christmas Hurdle at Kempton, before winning at Haydock last month in his last public appearance before next month's Festival.
"It's bad for them and I'm sad he's not in the race as we hoped we'd serve it up to him," said Twiston-Davies.
"We weren't frightened of having a go, but it makes our life a bit easier."
Twiston-Davies reports The New One to be in rude health with the big race now just under four weeks away.
"Everything's going superbly," said the Naunton handler.
"I've never had him better. We've got to keep touching wood because obviously things can go wrong, as we've seen with Faugheen."