The 2010 Vuelta champion and also the winner of the 2013 Giro d’Italia and 2014 Tour de France, was 1min 30sec behind the peloton 20km from the finish line but managed to make it back into the bunch nine kilometres later.
Basing their decision on television images clearly showing an infringement of the rules, the Vuelta race commissaires decided to take him out of the race.
"The film shows clearly that Nibali was clinging to the car for 200 metres. The decision of the commissaries panel is to disqualify Nibali from the race", said Bruno Valcic, the president of the race commissaires.
Valcic added that team director Alexandre Shefer, who was driving the car, has also been tossed from the race.
"It was a tough decision for the commissaires panel but after looking at the images, it was clear that we had no opportunity to give any other penalty to the rider," he added.
Away from the drama of Nibali, Esteban Chaves, of Australian outfit Orica-GreenEDGE, grabbed the race lead after surging clear to win the stage into Caminito del Rey.
Chaves pipped Dutchman Tom Dumoulin (Giant-Alpecin) to the line in the 158.7km trek by one second, with Team Sky's Nicolas Roche a further eight seconds back in third and Irish compatriot Daniel Martin of Cannondale-Garmin another five seconds behind in fourth.
Roche's Sky team-mate Chris Froome, the 2015 Tour de France winner who is bidding for a rare Tour-Vuelta double, was seventh, 30 seconds behind Chaves, who will wear the leader's red jersey for today’s third stage into Malaga.
"We talked among ourselves and how to deal with everyone around us and the main thing to do was to attack these guys so that’s what we did," Chaves said.
"I felt like I was in a good position and in the end I did it and I got this (red) jersey."
Froome, who also won the Tour de France in 2013, was runner-up in last year's Vuelta behind Spaniard Alberto Contador.
Contador is not contesting his home race after winning the 2015 Giro d'Italia but struggling on the Tour.