The Leicester forward has withdrawn from his place on the bench for Wednesday's clash against Wellington, when he will be replaced by his England colleague Richard Hill.
The Lions confirmed Moody had suffered an injury to his left knee in training, but the apparent seriousness was not revealed until coach Gareth Jenkins spoke to the media in Wellington on Tuesday.
Jenkins revealed that Moody is "out of the selection process" for next Saturday's game against Otago in Dunedin, and that will seriously hamper his Test prospects, given the Lions boss Sir Clive Woodward is likely to have finalised his first choice line-up by early next week.
Moody has not travelled to Wellington, remaining behind at the squad's Christchurch base for further tests.
Three players - Lawrence Dallaglio, Malcolm O'Kelly and Simon Taylor - have already been ruled out of the tour because of injuries.
The possible loss of Moody would be a huge blow, given his versatility at blindside and openside flanker, but it would appear the signs are not good.
Prop Andrew Sheridan, meanwhile, is battling to overcome an ankle injury sustained against the New Zealand Maori last Saturday, raising doubts about his prospects of being fit to face Otago. Like Moody, Sheridan is a serious candidate for the Lions' Test 22.
The British and Irish Lions team to play Wellington on Wednesday is:
J Lewsey (Wasps and England); J Robinson (Sale and England), B O'Driscoll (Leinster and Ireland, capt), G Henson (Ospreys and Wales), G Thomas (Toulouse and Wales); J Wilkinson (Newcastle and England), D Peel (Lanelli and Wales); G Jenkins (Cardiff and Wales), S Byrne (Leinster and Ireland), J White (Leicester and England), D Grewcock (Bath and England), B Kay (Leicester and England), S Easterby (Llanelli and Ireland), N Back (Leicester and England), M Corry (Leicester and England).
Replacements: G Bulloch (Leeds and Scotland), M Stevens (Bath and England), P O'Connell (Munster and Ireland), R Hill (Saracens and England), C Cusiter (Borders and Scotland), S Jones (Clermont Auvergne and Wales), S Horgan (Leinster and Ireland)
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