The 23-year-old royal - who returned to the UK after 10 weeks active service in the Helmand Province of Afghanistan on March 1 - has been told he will not see further frontline action "any time soon".
General Sir Richard Dannatt, head of the British Army, said: "There may well be some point in the future where it will be appropriate to deploy him somewhere - but that is not going to happen any time soon."
Harry is said to be devastated, but is still hoping he will fight for his country again.
A source said: "Harry has been pinning his hopes on getting back on the frontline as soon as possible. But he accepts the position and is prepared to wait until the time is right."
Dannatt has also defended his decision to approve Harry's secret deployment to Afghanistan despite banning him from serving in Iraq last year.
He said: "It was absolutely the right decision to send him. It reflected very well on the relationship between the Royal Family, the armed forces and the nation."
Meanwhile, Harry will be presented with the Operational Service Medal (OSM) for his role in fighting the Taliban.
The prince - who was recently promoted from Second Lieutenant to Lieutenant - will be among 160 other Household Cavalry troops to be honoured by his aunt, Princess Anne, at the Windsor barracks on May 5.
The OSM medal for Afghanistan is silver and round. It features Queen Elizabeth on one side and the Union Flag and compass on the other.
TAGS: Europe Prince Harry