Her Majesty is believed to be “upset” after Autumn, 41, told Princess Anne’s son, 42, she wants to split after 12 years of marriage.
A friend told The Sun: “He is devastated.”
It comes amid fears that the mum-of-two wants to follow Harry and Meghan to her native Canada.
Close friends are suggesting that Megxit – Prince Harry and Meghan’s departure from the UK to Canada – could have hastened Autumn’s shock decision.
Sports marketing consultant Peter, 42, and Autumn, 41, who is a management consultant, have two children – Savannah, nine and Isla, seven.
It is believed the daughters have dual Canadian citizenship which means they could easily live in Canada if Autumn were to return there.
One friend revealed: “Peter is absolutely devastated by this and just didn’t see it coming.
“He thought he was happily married and had the perfect family with two lovely daughters. But he is now in total shock.
“Autumn is a wonderful wife and mother and a very intelligent woman but she’s been telling her friends for some time that there were issues.
“She is a favourite of the Queen and I’m sure Her Majesty will be very upset by this as well.
“It’s the last thing she needs after all her recent troubles and you get the feeling that the royal family is falling apart a little bit.”
Autumn is close to the Queen and was seen travelling with her to church on September 29.
The Sun’s revelation comes just two weeks after Peter sparked international controversy for advertising milk in China while being promoted as a “British royal”.
Those close to the couple have expressed concern that Autumn might want to start a new life in Canada, just like the Duke and Duchess of Sussex have decided.
A friend said: “What worries some of us is that Autumn may want to go back to Canada.
“Maybe she has been influenced by Harry and Meghan’s departure. Perhaps she thought if that can happen then I can leave as well? That might be unfair on her but you have to consider it.”
No other party is involved in the split, sources said.
A friend explained: “Certainly none of us think either Peter or Autumn are involved with anyone else.
“It just seems they have grown apart but it’s come as a bolt out of the blue for Peter and he’s very upset.”
The split is the latest problem for the royal family after a disastrous year, which some commentators have branded a second Annus Horribilis.
Prince Philip injured two members of the public in a car crash then fell ill, disgraced Prince Andrew had to step back from royal duties after a catastrophic interview about his friendship with paedophile Jeffrey Epstein and last month Harry and Meghan announced they were quitting the UK.
A senior royal source said: “The Queen must wonder what she has done to deserve this.
“Peter Phillips has always been a favourite of hers and Prince Philip and she will be crestfallen by this, especially on top of all the other bad news.
“It makes you wonder what’s going to happen next.”
Peter previously dated Elizabeth Lorio, a cod liver oil heiress from the US, and BA air stewardess Tara Swain.
He met Autumn in 2003 at the Formula One Grand Prix in her home city of Montreal.
They were both working at the event, but the Canadian beauty had no idea he was the Queen’s grandson until she saw a picture of him on TV six weeks later.
She later revealed in an interview her mother told her: “Oh, Autumn, what have you gotten yourself into.”
Peter proposed in 2007 after he got permission from Autumn’s father.
Speaking of their engagement, she said: “I certainly didn’t see the question coming.
“I looked horrible in my wellies with wet hair. I said yes straight away though.”
Autumn, raised Catholic, had to convert to Church of England before their wedding in 2008 so Peter could stay in the line of succession, where he is currently 15th.
They married at St George’s Chapel in Windsor but Peter was accused of cashing in on his family connections by selling wedding photos to Hello magazine for a reputed £500,000 ($A965,000).
Over 300 guests saw the couple tie the knot, including the Queen and Prince Philip and 70 members of Autumn’s family who jetted in from Canada.
In line with tradition, the pair spent the night before the wedding apart with Autumn occupying Windsor Castle while her future husband stayed with his uncle Prince Edward.
Peter’s sister Zara Phillips was joined by Mike Tindall, who she married three years later, and cousins Princess Beatrice and Prince Eugenie.
Prince Harry was accompanied by then girlfriend Chelsea Davy but Prince William was unable to attend due to a clash with a friend’s wedding in Kenya. Kate Middleton attended without him.
But both William and Harry privately raised concerns that their then girlfriends featured so heavily in the glossy mag’s coverage, which was billed as a “100-page special”.
Peter and Autumn held their reception at nearby Frogmore House and they travelled there in an open carriage pulled by two Windsor Greys.
The venue was offered to them by Queen Elizabeth, which has added to a belief Peter is the Queen’s favourite grandchild.
Following their nuptials the couple, who lived in Hong Kong between 2008 to 2010, went on to have two children Savannah, the Queen’s first great-grandchild, and another daughter, Isla, two years later.
The pair are often referred to as playful tomboys, seen frolicking at horsey events with their royal cousins.
Peter is the son of Princess Anne and her first husband Captain Mark Phillips, and was brought up without a royal title so he could make his own way in the world, just like his sister Zara.
His wedding wasn’t the first time he’s used his royal connections to make money.
Last month, Peter caused controversy after he appeared in an advert promoting “Jersey Fresh Milk” in commercials shown on Chinese TV.
Peter is seen holding a glass of milk in front of a stately home with the caption: “British Royal Family member Peter Phillips.”
He boasts in the advert of being brought up on Jersey milk from the herd at Windsor.
Before his milk commercials came to light, he held meetings with Chinese entrepreneur Dr Johnny Hon. over a possible launch of a horseracing private members’ club in Hong Kong.
Dr Hon. said his new business partner, who was receiving a salary for his “figurehead”
role, was able to ”meet some potential members”.
Peter also allegedly made money from organising a street party lunch to celebrate the Queen’s 90th birthday, with his firm paying £750,000 ($A1.44 million).
His company SEL UK oversaw the party in London, when 10,000 representatives of the Queen’s charities paid £150-a-head ($A289) to attend.
This article originally appeared in The Sun and was reproduced with permission