Albon suffered a big accident in Turn 6 during Friday morning's first free practice session, which prompted a chassis change for the Anglo-Thai driver.
Because Williams didn't have a spare chassis at its disposal, the Grove team has decided to let Albon use team-mate Sargeant's car, meaning the American will sit out the rest of the Melbourne weekend.
"While Logan should not have to suffer from a mistake that he did not make, every race counts when the midfield is tighter than ever, so we have made the call based on our best potential to score points this weekend," team boss James Vowles said.
"This decision was not made lightly, and we cannot thank Logan enough for his graceful acceptance, demonstrating his dedication to the team; he is a true team player. This will prove a tough weekend for Williams, and this situation is not one that we will put ourselves in again."
"I have to be totally honest and say that no driver would want to give up his seat," said Albon, who was responsible for 27 of Williams' 28 points scored during the 2023 season.
"Logan has always been a consummate professional and a team player from day one, and this won't be an easy one for him to take.
"At this point though, I cannot dwell on the situation and my only job now is to maximise our potential this weekend and work with the whole team to make sure we do the best job possible."
Sargeant said it was the "hardest moment" of his career to miss out on the rest of the Australian Grand Prix.
"This is the hardest moment I can remember in my career and it's absolutely not easy," he commented.
"I am however completely here for the team and will continue to contribute in any way that I can this weekend to maximise what we can do."
According to Vowles, Williams not having a third chassis in Melbourne was a sign of the delays it faced this winter to get the FW46 ready in time.
"It's unacceptable in modern day Formula 1 not to have a spare chassis, but it is a reflection of how behind we were in the winter period and an illustration of why we need to go through significant change in order to get ourselves in a better position for the future," Vowles added.
Speaking to Autosport before the decision was made, Vowles explained that not taking a third chassis was one of the risks the team had taken to push its development to the limit.
Commenting on the crash itself, Albon said he was surprised by how the car snapped after bouncing over the Turn 6 exit kerbs.
"Just exploring a little bit, went a bit wide, had a bit of an aggressive kind of kerb strike, and it lifted up the front," he explained.
"I honestly didn't think anything of it at the time, I thought: 'Okay, it's fine. I'll obviously just back out and let the car land.'
"But when I did land I bottomed out pretty badly and it just kind of slapped me.”
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