The 25-year-old Manchester United player was carried off on a stretcher shortly before half-time at Guadalajara's Estadio Akron after appearing to twist awkwardly while closing down Spain midfielder Pedri.
United did not confirm whether he injured his anterior cruciate or medial collateral ligament.
A torn ACL is generally considered a far more serious injury than an MCL tear, usually requiring surgery and many months of rehabilitation.
"Assessment of the injury is ongoing to determine the best course of treatment and the rehabilitation timescale," United said in a statement.
Ugarte, who started all three of Uruguay's World Cup group games, was distraught, tugging his shirt over his face as he was carried off the pitch.
"We will continue working together through the evaluation process to later confirm the full extent and severity of the injury," Uruguay's soccer federation said in a statement.
The twice World Cup champions were eliminated with the loss, finishing third in Group H on two points.
The injury is another blow for Ugarte, whose Old Trafford career has yet to gain momentum since he joined United in a deal worth 50 million euros from PSG.
He started only eight Premier League matches in 2025/26 and was named in the starting lineup just once during United's final 16 league games.
FIFA World Cup 2026
The 2026 World Cup is taking place from June 11th to July 19th in the United States, Canada and Mexico. The tournament features 48 national teams and is played at 16 modern stadiums.
Match schedule and times | Group tables | How to watch the World Cup | World Cup Format | Past winners of the World Cup