He will return home and undergo surgery.
The 33-year-old Aussie wicketkeeper was unavailable for KKR's first three outings as he was busy with national duty in Bangladesh.
After joining the side, Haddin scored 18 in his only appearance for Knight Riders in their nine-wicket loss to Royal Challengers [ Images ] Bangalore in Kolkata.
Confirming the development, Knight Riders coach Dav Whatmore said, "We will make an announcement on his replacement in due course."
The Kolkata franchise, who roped in Haddin in January's auction for US $325,000, is running against time to make an announcement about the replacement player as the IPL rule stipulates a team can get a replacement player only before playing eight matches.
The Knights take on Kings XI Punjab [ Images ] in their eighth match on Saturday. The injury-prone Haddin had missed Australia's five-match ODI series against England [ Images ] last year due to an elbow injury.