Jonathan Legard reports (BBC Radio 5 Live)

The Scot suffered engine failure after 19 of the 28 stages.

McRae was 13.8 seconds ahead of his fellow Briton Richard Burns when engine cylinders in his Subaru blew while he was on a road section heading towards the service area.

New leader Burns at a service stop at Builth Wells

His mechanics had 20 minutes to repair the problem - but they were unable to do so and the pre-race favourite, who triumphed in 1994, 1995 and 1997, was forced to throw in the towel.

Retirement represents a sorry end to McRae's Subaru career, before he heads to Ford next season.

"It's the end of a bad season for me," said McRae.

His co-driver Nicky Grist added: "We first heard the engine misfiring on the road heading towards the service area at Builth Wells and it got progressively worse.

"There was oil in the engine so it can't have been that - it could well have been a piston."

The 30-year-old had been in superb form throughout the rally. He led overnight and only lost the advantage to Burns on Monday morning after two spins on stage 16.

But he battled back to regain the lead immediately.

McRae's withdrawal puts Burns back in front as he bids to help hand the world championship to his Mitsubishi team-mate Tommi Makinen, who pulled out on Sunday.

Sainz keeps title bid alive

Carlos Sainz, the only man who can deny Makinen the crown, was given a huge boost by McRae's departure.

French hopeful Auriol accelerates off a bridge

The Spaniard only needs his Toyota to finish in the top four to take the crown.

But Sainz almost threw away his championship hopes, as only a perfectly positioned exit road prevented him skidding out in similar fashion to Makinen.

He lost 50 seconds plus further time after struggling with the handling on the last stage of the day and dropped to fourth.

Subaru's hopes now rest with McRae's brother Alister, making a one-off appearance in the team, who is handily placed in second with seven stages left.

Oxfordshire driver Burns had earlier launched his bid for glory, when he put behind him the mechanical problems that left him only sixth at the end of a disastrous first leg.

Burns set the fastest time on all of the day's first three stages to displace McRae from the top of the standings for the first time in the event.

Overall standings after 21 stages: