Carragher is under fire for spitting at a 14-year-old girl on Saturday after Liverpool were beaten 2-1 by Manchester United.
He was axed from Monday Night Football and suspended by Sky.
But Sky Sports have now confirmed he will sit out the rest of the season but faces showdown talks to save his job beyond then.
“Following an internal review, Sky has suspended Jamie Carragher for the remainder of the football season,” a statement read.
“Jamie has taken full responsibility for what has happened and we will ensure he gets the help he needs to guarantee something like this never happens again.
“Before the start of the next season we will sit down with Jamie to discuss whether he is ready to return to his role.”
Carragher was grilled by Sky News in a 13-minute interview on Monday after the incident as he battled to keep position with the news broadcaster.
He apologised and called the incident a moment of madness and had to choke back tears when revealing what his family and friends thought.
“It was a moment of madness, it’s difficult for me to explain,” he said on Sky News in an interview with Sarah Hewson.
“It’s just that moment of madness for four or five seconds. No matter the circumstances, you can’t ever behave like that.”
Sky announced his suspension at the time claiming the behaviour was well bellow the standards they expect from their people.
But now it has been announced he will off screen until at least the end of the season.
Reaction to Carragher’s incident has been mixed with some claiming one mistake should not tarnish his reputation for good.
While others have called on the former Liverpool defender to be sacked and off the TV for good.