Under Series rules, Hunter-Reay will now receive a 10-spot penalty on the starting grid for Sunday's Edmonton Indy race.
It was a brutal end to a tough day at the track for the 31-year-old Florida native.
His No. 28 car struggled with grip issues all day during two practice sessions on the 2.2-mile, 13-turn temporary street course at the City Centre Airport.
He was also hit with an unsportsmanlike conduct penalty in the morning session for running fellow driver James Jakes wide, over the white line, and off course.
"It was a rough day," said Hunter-Reay.
"We're lacking overall grip right now. We're sliding around too much.
"We need to get the right mix, and I think tomorrow is going to throw a bit of a wrench into it because it's supposed to rain a lot (during qualifying session)."
Hunter-Reay was 22nd in the morning session and eighth in the afternoon to finished ninth overall combined.
The team said the change-out of the Chevrolet engine was done as a precaution after the race in Toronto two weeks ago.
In that race, Hunter-Reay's teammate, James Hinchcliffe, saw his engine mysteriously bleed away horsepower, forcing him to drop out of the event and change the powerplant.
Because Hinchcliffe's engine developed trouble during the Toronto race rather than before or after it, Hinchcliffe won't receive the 10-spot grid penalty in Edmonton.
Under IndyCar rules, teams that change engines before the 1,850-mile limit incur the 10-grid-spot penalty.
Helio Castroneves was the fastest at Friday's practice with the fastest lap at one minute 16.49 seconds.
The Brazilian sits third in the standings, 46 points back of Hunter-Reay.
Scott Dixon, fourth overall in the standings, was second and Mike Conway third.
Hinchcliffe, from Oakville, Ont., sits fifth in the standings.
He rebounded from finishing 18th in the first practice session to fifth overall by the end.
He said his No. 27 GoDaddy car got better as the day wore on.
"We had a very loose car this morning, so we made some changes to sort of calm the rear of the car down and that gives you a lot more confidence in the brake zones," he said.
A few cars slid sideways and there were multiple red flags in the second session as drivers tested the limits on the hairpin corners. There were no crashes.
Hunter-Reay was ordered off the circuit in the last few minutes of the morning practice session after he forced Jakes off the road going through the final hairpin corner.
Hunter-Reay said it was a misunderstanding with Jakes, who was going slow in the racing line when, as per driver courtesy, he should have given way to Hunter-Reay who was flying through at full speed.
"He was off the pace on the racing line," said Hunter-Reay. "I talked to him since. No big deal. It's all sorted out. No problem at all.
"When you're running slower, let's say you blew your corner and you're kind of taking your time on the way into the pits, you're supposed to move out of the way for the guys on the hot lap."
Hunter-Reay has gone from being the hunter to the hunted in IndyCar. He took over the lead from Will Power two weeks ago in Toronto and holds a slim margin of 34 points heading into Sunday's race.
He is the first American to lead the series since Sam Hornish Jr. in 2006. He has won the last three races in a row.
Also on track Friday, the engine problems continued for Simona de Silvestro.
The 23-year-old HVM driver saw her Lotus engine send up smoke during the first practice session.
"One of the turbos was leaking, so we fixed it. There's no problem," she said.
Both she and Dixon are over their five-engine limit and will be assessed 10-spot grid penalties for Edmonton. It's a far bigger blow to Dixon, given he is within striking distance of the lead with five races to go.