Stamkos had a CT scan done on his recovering leg Wednesday afternoon, and doctors determined that his right tibia was not healed. He will continue his rehab and be evaluated again in two or three weeks, according to the team.
"Although the doctor was very pleased to this point with the healing process, he explained that the callus surrounding the fracture site is not 100 percent consolidated, and Steven will not be cleared to play in a game until that happens," Lightning and Team Canada general manager Steve Yzerman said in a team release. "It was a pretty clear-cut decision, no gray areas at all."
Stamkos broke his leg in a Nov. 11 game against the Bruins. His recovery has progressed rapidly following surgery to place a titanium rod in his tibia, just not fast enough to compete in the Olympics.
"Today is obviously very disappointing for me," Stamkos said in the release. "I honestly believe that we did everything possible in order to have my injured leg ready in time for the Olympics, but I realize you can't force healing. I know, in the best interest of my long-term health, I cannot represent Canada in Sochi, as much as I would like to."
The news means Hockey Canada has a choice to make in naming his replacement for Sochi. Tampa Bay teammate Martin St. Louis, Philadelphia forward Claude Giroux, Pittsburgh's James Neal and Carolina's Eric Staal are among the possible candidates.
Yzerman told ESPN.com via text message that a replacement player announcement will take place "within 48 hours."
Stamkos has been practicing with the team and hoped to play Saturday night against Detroit in Tampa Bay's final game before the Olympic break. He had increased contact drills during practice this week.
In 17 games this season, he has 14 goals and nine assists.
Sidney Crosby, the Canadian captain, was disappointed in the news.
"It's tough to see. I think we all figured if there's anyone that's going to find a way back, it would be him," Crosby said after his Penguins beat Buffalo on Wednesday night. "That being said, it's probably more difficult for him than anyone else. You feel for him, but we obviously have to move forward."
Crosby declined to suggest who he might favor as a candidate to replace Stamkos.
"With different guys in the mix, I think it's a good problem to have," Crosby said. "But nonetheless, I don't think it's an easy decision at all."
ESPN.com's Pierre LeBrun and The Associated Press contributed to this report.