Continuing the drama that has punctuated this year’s Tour, Kittel crashed 20km into the 17th stage.
The German sprint ace, who had won five stages in this Tour, hurt his shoulder.
He kept riding, but about an hour and a half later the Quick-Step rider withdrew.
Matthews had already reduced Kittel’s lead to just nine points when the Australian was in an early break and took out the intermediate sprint.
That had given Matthews extra points, while Kittel did not score any.
Matthews had closed the gap on the German star by winning stages 14 and 16 and while he was elated to move into the green jersey Matthews also felt for the German.
“After getting 50 points yesterday I knew that it was game on,” Matthews said.
“I knew beforehand that I had to be active to get those 20 points today and was aware that even if I did get those points it was still going to be difficult.
You never want to see a guy out of a race like this, it’s been such a good battle up to this point and I hope Kittel is ok.”
Matthews now has a 160-point lead over German sprinter Andre Greipel.
The Lotto-Soudal rider is an 11-time Tour de France stage winner, but Greipel is yet to add to that tally this year.
Matthews started the Tour as an outsider in the green jersey battle.
Slovakian star Peter Sagan was the overwhelming favourite after winning the last five.
But Sagan controversially was disqualified after the chaotic stage-four finish where British sprinter Mark Cavendish crashed out of the Tour.
Cavendish had won the Tour points classification in 2011, the year before Sagan started his domination.
After Kittel dominated the end of stage 11 in Pau for his fifth win in this year’s Tour, he led Matthews 335 points to 202.
By the time Kittel pulled out of the race in stage 17, that margin was 373-364.
If Matthews can maintain his lead through to Sunday and the famed last stage into Paris, he will become the third Australian to win the points classification.
Robbie McEwen won the green jersey in 2002, ’04 and ’06, plus Baden Cooke took it out in ’03.
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