The Belgian driver had extended his advantage through a wet morning in Alsace, but he fell foul of a still-damp right hander near the start of the Hohlandsbourg test this afternoon.
Having led from SS6, he dropped to fifth place when he shipped 1m26s to fastest man through Sebastien Ogier.
"I was too fast into a right-hand junction," he said. "I slid very slightly and hit something, a small stone or something. This knocked the tyre off the rim and let the air out. That was it then."
Latvala moves into Rally France lead
The problem with the left-rear Michelin caused Neuville to spin further in the test.
Neuville's misfortune has closed the gap between the top four drivers, with just 7.5 seconds separating new leader Dani Sordo from his fourth-placed Citroen team-mate Sebastien Loeb.
The outgoing world champion dropped a place to Ogier after suffering understeer on his DS3 WRC. Jari-Matti Latvala is running second, 2.6s behind the Spaniard.
Neuville extends lead in France
Neuville blasts into lead in France
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