The 1954 painting, Sylvette - featuring model and muse Sylvette David - sold to an anonymous overseas phone bidder at the Deutscher-Menzies Galleries.

One of 40 works inspired by David, it was painted by Picasso when he was 73.

The sale broke the previous record of $3.48m AUS (£1.67m), set in 2007, for a work by Australia's Brett Whiteley.

"Sydney is the New York of the art market in the southern hemisphere," said Deutscher-Menzies Galleries spokeswoman Marie Geissler.

'Historic day'

Rodney Menzies, the director of the gallery, bought the Picasso two years ago for $4.6m (£2.2m).

"It's a historic day for Australia in the sense that a very significant international picture by the greatest artist of the 20th Century was sold at an Australian auction for a record price," Mr Menzies told Agence France Presse.

Picasso came across Sylvette David, his 17-year-old neighbour, while living in the south of France.

Her tall frame and long, blond ponytail fascinated the Spanish cubist painter, who died in 1973.

BBC