Madrid says medical tests show the Croatia international has a "strain to the medial collateral ligament of his right knee" after he hurt his leg and needed to be substituted in the 57th minute of Saturday's 3-1 win over Malaga.
The club did not say how long it expects him to be out but Spanish media says he is expected to miss six weeks.
Madrid hosts Atletico Madrid on Wednesday in the Champions League with their quarterfinal poised 0-0.
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A left thigh injury sidelined Modric for three months earlier this season.
Gareth Bale also left Saturday's match with a left calf injury. The club has yet to report on his condition.
Madrid trails Barcelona by two points in la Liga with six rounds left.
