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About 50 metres from the end of Stage 4 on Tuesday, Sagan elbowed Cavendish, who was squeezed against the barriers to his right, out of the way.
Cavendish slammed into the barriers and two other riders plowed over the British sprint specialist, a winner of 30 Tour stages.
Race jury president Philippe Marien of the UCI says, "We have decided to disqualify Peter Sagan from the 2017 Tour de France after the tumultuous sprint here in Vittel, where he endangered several riders, including Mark Cavendish and others who involved in the crash."
Cavendish was taken to hospital by ambulance after the spectacular crash. Race leader Geraint Thomas was also taken down in a separate crash in the final kilometre of the 207.5km stage from Mondorf-les-Bains to Vittel.
Briton Thomas, who had warned on Monday that he just wanted to stay clear of trouble, hit the deck for the second time in three stages.
"It's ok, both times I managed to take off quite a bit of speed (before crashing)," said Thomas.
"I'm used to crashing, so it's fine, I'm all ok." His crash came on a bend just inside the final kilometre but Cavendish's fall looked more damaging, just inside the final 100 metres. Cavendish was baulked by world champion Sagan against the metal barriers on the side of the road and crashed hard, with two riders, including German John Degenkolb, hitting the stricken Briton as they somersaulted over the top of him. Cavendish did finish the stage but later left his Dimension Data team bus with his arm in a sling as he was taken to hospital by ambulance.
"Mark Cavendish hurt his shoulder and hand. On his way to the hospital for further examinations," said Dimension Data on Twitter.
"If I was Sagan, I'd apologise for that," Cavendish's sports director at Dimension Data Roger Hammond told journalists. Sagan did go to the Dimension Data bus after the race to speak to Cavendish, who crashed out of the 2014 Tour in the first stage after breaking his collarbone in a sprint finish fall he later admitted was his fault. While Thomas was able to get up and ride on to the finish, Cavendish had needed medical assistance as he lay on the ground in obvious pain.
In all the furore of another bunch pile-up, French champion Demare's achievement of becoming the first Frenchman to win a Tour stage in a sprint finish since 2006 was almost lost. His win allowed him to claim the sprinters' green jersey from German Marcel Kittel, winner of Sunday's second stage but who was held up by the first crash and unable to contest the sprint.
Sagan took second place with Norway's Alexander Kristoff third on the stage.
Sagan's time bonus on the line helped him move up to second overall at seven seconds behind Thomas, with reigning champion Chris Froome, who was held up by the first crash, third at 12sec.Stage four results
1. Arnaud Demare (France / FDJ) 4:53:54"
2. Alexander Kristoff (Norway / Katusha) ST
3. Andre Greipel (Germany / Lotto)
4. Nacer Bouhanni (France / Cofidis)
5. Adrien Petit (France / Direct Energie)
6. Juergen Roelandts (Belgium / Lotto)
7. Michael Matthews (Australia / Sunweb)
8. Manuele Mori (Italy / UAE Team Emirates)
9. Tiesj Benoot (Belgium / Lotto) 10. Zdenek Stybar (Czech Republic / Quick-Step)
Points Classification after Stage 4
1. Arnaud Demare (France / FDJ) 124
2. Marcel Kittel (Germany / Quick-Step) 81
3. Michael Matthews (Australia / Sunweb) 66
4. Andre Greipel (Germany / Lotto) 63
5. Alexander Kristoff (Norway / Katusha) 43
6. Sonny Colbrelli (Italy / Bahrain) 38
7. Mark Cavendish (Britain / Dimension Data) 38
8. Geraint Thomas (Britain / Team Sky) 31
9. Ben Swift (Britain / UAE Team Emirates) 31
10. Nacer Bouhanni (France / Cofidis) 28
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