Girl With Red Balloon was one of the star attractions at Sotheby’s Contemporary Art Evening Sale in October 2018.
Depicting a girl reaching towards a bright red heart-shaped balloon, the spray paint and acrylic on canvas is one of Banksy’s best-known images.
The auction house said the painting was signed and dedicated and that the vendor had acquired it from the artist in 2006.
The winning bid of £860,000 (£1,042,000 including buyer’s premium) was given by phone at around 9pm, well over the pre-auction estimate of between £200-300,000.
But just after the hammer went down, the painting was shredded, thought to be by a remotely activated mechanism within the frame.
The prized work then came out the bottom in strips.