The federal government will inform Sotheby’s today that its prize Aboriginal painting to go up for auction tonight will not be given an export permit under Australia’s Protection of Movable Cultural Heritage Act.

The decision is certain to deter overseas collectors from bidding and will undoubtedly mean it will not fetch as high a price as Sotheby’s had hoped.

Warlugulong, a monumental, wall-sized work, was painted in 1977 by the famed Clifford Possum Tjapaltjarri and has been rated one of his greatest paintings, depicting as it does the artist’s Fire Dreaming.

Sotheby’s had estimated it could set a new record for an indigenous art work of up to $2.5 million. The firm was hopeful it could even break the current top price for any Australian painting of $3.48 million (set last month for Brett Whiteley’s The Olgas at a Deutscher-Menzies auction in Sydney), especially as it had attracted considerable interest when the saleroom exhibited it with other major works from tonight’s sale in New York and London earlier this year.

Tim Klingender, Sotheby’s Aboriginal art specialist, has told prospective overseas buyers they would not now get a permit to take the painting out of the country.

Klingender told Crikey the painting would have attracted strong bidding from foreign collectors and that it would have sold for a much higher price than he now expected had the ban on its export not been imposed.

“We did apply for a permit for this work – that and many other pictures – but were told the painting was considered ‘contentious’ and we would be informed before the sale whether it would be allowed out of the country,” he said.

“The quality of this painting, its age and the fact Clifford has died, means it will not be given a permit.”

Under the act, Aboriginal art works that are 20 or more years old and worth more than $10,000 must obtain an export licence to be taken overseas. An expert committee advises the federal Arts Minister who makes the final decision.

Although Klingender claims the act has had a serious impact on sales of Aboriginal art to overseas collectors, it has not stopped them or local bidders who have been buying up paintings and other indigenous art in ever-increasing numbers.

In the early 1990s, Aboriginal art was worth a mere $620,000 a year to the auction-houses but by 1995, turnover exceeded $1 million for the first time and, by 2001, sales totalled $6 million. Last year, with three firms holding specialist auctions and more than 2500 Aboriginal works on offer, turnover hit a new high of $14.3 million.

Sotheby’s was the first to hold an Aboriginal art-only auction in Melbourne in 1997 and was the first to take a selection of works to show in New York, Los Angeles and London. Over the years, those exhibitions helped expand the market as collectors across Europe and America became enthusiastic buyers.

As with the general art market, prices have also boomed although the rapid escalation only really started in 1998 when an American collector paid $200,000 – 10 times the presale estimate – for a stunning painting by Johnny Warangkula Tjupurrula.

The artist, one of the pioneers of the Papunya “dot movement”, is believed to have sold it in the 1970s for about $200 and at the time of the Sotheby’s sale he was half-blind and destitute.

The work re-appeared at Sotheby’s two years later when it sold to another American for $486,500.