The Bugatti Type 22 which had lain submerged 53 metres below the surface of Lake Maggiore for over 70 years had attracted much pre-sale publicity.
A number of telephone bidders sparred against those in the room.
The winning bidder - a European collector representing the Peter Mullin Collection in California - will show the car in its present condition in his museum.
In contrast, the under bidder, an American, had intended to restore the car - testament to how the bidding process can determine an item's fate.
Eventually, the Bugatti sold for over two-and-a-half times its estimate: €260,500 over an estimate of €70,000-90,000.
"The Lake Maggiore Bugatti was a tremendous result and I am pleased it has gone to a good home where it will be displayed in its present form," said James Knight, Group Head of Bonhams' Motoring department.
"By the time the sale finished we had achieved a success rate of over 70%.
"With any auction there is always selective bidding, and there were one or two disappointments, but demand is very much in evidence for prime examples - whatever age, style and value," he said.