He had been due to take part in his second Dakar as a full factory KTM rider, having become the first Brit to win a stage on a motorcycle in 16 years in 2014 with Honda.
But, the Poole-born rider announced on Tuesday evening on social media that his injuries had failed to heal sufficiently for him to be able to take part in the Dakar, which begins on 3 January.
“I did everything I could and I am so grateful for all the people that helped get me this far,” Sunderland said on his Instagram account.
“The Dakar is a long tough race when you start 100 percent, and my leg isn’t quite there yet. I have a lot of good healing but not quite enough, and the smartest decision is to sit this one out.
“All the people I have around me have been amazing, it motivates me to keep pushing towards the world championship in 2016 and [the] next Dakar.”
Sunderland’s withdrawal means KTM hopes for the 2016 Dakar now lie with its remaining factory riders Toby Price, Jordi Viladoms and reigning cross-country rallies champion Matthias Walkner.