The 26-year-old, who played on the wing against the All Blacks at Eden Park, had fought his way back to fitness after the two previous breaks and an excellent season with the ACT Brumbies had earned him a test recall.
"It's very disappointing news, actually. He had a scan over in New Zealand and it was reported to have had a little fracture in his neck," Larkham told ABC Radio.
"He's since seen a specialist in Sydney and the specialist has confirmed it is a fracture in there, and that he strongly suggests never to play ever again.
"I think at this stage, Patty's made the decision that he's not going to play again."
McCabe won his first cap off the bench against Italy on Australia's 2010 November tour and played all but the last two of his 24 tests at centre.
At the 2011 World Cup, McCabe was controversially used as an inside centre battering ram by then Wallabies coach Robbie Deans but it was not until the 2012 November tour of Europe that he fractured his neck for the first time.
Another fracture in the opening test of the British and Irish Lions series last year led to another lengthy spell on the sidelines and he returned this year playing in a protective scrum cap.
Widely regarded as one of the most decent men in Australian rugby, McCabe has combined his rugby career with studies for a law degree.
"He had a bit of a scare earlier in the year but overcame that and fought his way back into the Wallabies side and I thought things were on the up and up for him," Larkham.
"So really devastating news for Patty and for his family but the good thing is that he's in a neck brace now and will remain in a neck brace for the next couple of months and the neck should heal up fine.
"But devastating that he won't play rugby again."
