Pavano, who underwent a series of tests Thursday after leaving his rehab start on Wednesday after nine pitches, was diagnosed with a bone chip just above his right elbow.
The right-hander will undergo surgery sometime next week, possibly Tuesday, to be performed by noted orthopedist Dr. James Andrews. According to general manager Brian Cashman, it typically takes six weeks until a pitcher can begin a throwing program following this procedure.
"Is his season over? No, not based on the timeframe," Cashman said. "But it's a significant setback with a completely new injury. It is what it is, so we have to get it taken care of."
"It's a disappointment for him, for sure," said manager Joe Torre. "We feel badly for him, because he's worked so hard to get back. This just throws a monkey wrench into that."
Pavano had made three rehab starts, the last two for Double-A Trenton. But he left each of those two outings before reaching his pitch count of 80-90, throwing 63 on May 12 before experiencing soreness in his bicep, then nine pitches on Wednesday before leaving with soreness in his triceps.
Pavano is in the second year of a four-year, $39.95 million contract, but he hasn't pitched for the Yankees since June 27 due to injuries to his shoulder, back, buttocks and now his elbow.
"I wish I could say we're going to have him back this year, but how can I honestly say I know he will?" Cashman said. "He's had three separate, distinct, legitimate injuries now since he's been here that have prevented him from going out there. It's unfortunate."
"It's tough for me, but it's four times tougher for him," Torre said. "It's easy for people say, 'Well, he signed this big contract, he didn't have to do anything and he's getting paid.' But when you have somebody who is a competitor and does this for a living, the money doesn't enter into it."
Even with Pavano sidelined indefinitely, the Yankees have six starting pitchers on their staff, including Aaron Small, who will start for the injured Shawn Chacon on Sunday.
Pavano's latest woes make it unlikely that he will be able to contribute much to the Yankees this season, something Torre had finally believed would happen after watching him throw a bullpen session two weeks ago.
"This spring, I was excited that he seemed much more comfortable than last year," Torre said. "Even when I watched him throw in Tampa a couple weeks ago, his stuff was electric. We never saw that at any time last year."
Mark Feinsand is a reporter for MLB.com. This story was not subject to the approval of Major League Baseball or its clubs.