The 22-year-old midfielder is a major doubt for the tournament in Brazil after limping out of the German champions' 3-3 draw with Hoffenheim on Saturday.
Thiago was far from a certainty to make Vicente del Bosque's squad but his impressive form for Bayern had put him in strong contention.
His club confirmed the injury setback on Twitter after the match.
"Initial diagnosis for @Thi_Alcantara91 is a suspected partial ligament tear in his knee. Get well soon!" the tweet read.
Pep Guardiola's side were losing 1-0 when Thiago was replaced by Philipp Lahm with 25 minutes gone, but hit back to lead 3-1 five minutes before the break.
However, Hoffenheim became just the third side to take a point off Bayern this term with a goal either side of the interval to level it up.
And Guardiola, whose side travel to face Manchester United in the UEFA Champions League on Tuesday, paid tribute to the visitors' battling display.
"Credit to Hoffenheim," the Spaniard said. "They pressed well in attack.
"We have to analyse what happened today, then we will focus on Tuesday."
The injury to Thiago is the second blow in four days for Spain after Barcelona's Victor Valdes was ruled out of the competition with a knee injury on Wednesday.
