Fabian Cancellara won the 18km time trial after setting the early benchmark, with Tony Martin taking overall control
But it was bad news for stage two winner Sanchez, who seemingly fell of his bike while taking on a roundabout on the course and was immediately taken to hospital.
The Spaniard had been 22 seconds down on Cancellara’s fastest time through the intermediate time split, but was forced to abandon the race and now relinquishes his lead to German Martin, who sat 25 seconds down at the start of the day.
Both Thomas and Martin looked to challenge Cancellara’s impressive time on the relatively flat course, as the matched and gained on the Swiss respectively through the intermediate split.
But neither were able to hold on to that pace, handing Spartacus his second victory of the season after soloing to a win at the Challenge Mallorca in January.
Alex Dowsett (Movistar) had set the early benchmark for Cancellara with his time of 21-37, but it wasn’t too long before he began to move down the rankings, eventually taking seventh 40 seconds down.
Saturday’s stage is unlikely to see many major shake-ups in the GC, with, despite a number of climbs to navigate, a fast finish to the 169km course possibly ending in a reduced bunch sprint.
The fifth and final outing for the peloton on Sunday will prove decisive, with a category two summit finish that will probably decide who takes the title for 2016.
Volta ao Algarve stage three, Sagres (18km), ITT:
1. Fabian Cancellara (Sui) Trek-Segafredo, in 20-57
2. Tony Martin (Ger) Etixx-QuickStep, at 5 secs
3. Geraint Thomas (GBr) Team Sky, at 28 secs
4. Ion Izaguirre (Esp) Movistar, at 37 secs
5. Nelson Oliveira (Por) Movistar
6. Jonathan Castroviejo (Esp) Movistar, all same time
7. Alex Dowsett (GBr) Movistar, at 40 secs
8. Tony Gallopin (Fra) Lotto-Soudal, at 51 secs
9. Victor Campenaerts (Bel) LottoNL-Jumbo, st
10. Ramunas Navardauskas (Ltu) Cannondale, at 55 secs
1. Tony Martin (Ger) Etixx-QuickStep, in 9-22-17
2. Geraint Thomas (GBr) Team Sky, at 3 secs
3. Ion Izaguirre (Esp) Movistar, at 20 secs
4. Tony Gallopin (Fra) Lotto-Soudal, at 46 secs
5. Thibaut Pinot (Fra) FDJ, at 47 secs
6. Primoz Roglic (Slo) LottoNL-Jumbo, at 52 secs
7. Tiago Machado (Por) Katusha, at 59 secs
8. Ilnur Zakarin (Rus) Katusha, at 1-04
9. Jarlinson Pantano (Col) IAM Cycling, at 1-05
10. Alberto Contador (Esp) Tinkoff, at 1-07