Small and perfectly formed, one of the world's tiniest paintings has been sold at auction for £223,750, nearly 10 times its original estimate.

Measuring little more than 2in across, Portrait of a Lady by the miniaturist Nicholas Hilliard had been expected to fetch about £25,000. The price soared during bidding at Sotheby's in London last week, driving up the cost to the successful bidder, an unnamed private collector.

Peter Waldron of Sotheby's said yesterday: "After enthusiastic bidding in both the saleroom and via the phone, we have a new world record auction price for the artist.

"This portrait, which has remained in the same family and has never been seen on the market, was produced during the 1580s. At the time the artist was considered to be at his peak and it reflects his flourishing talent."

The portrait features the unnamed wife of a rich London merchant wearing a black dress with a white lace ruff and a high black hat. Hilliard, born in Exeter in 1547, became Queen Elizabeth I's first official miniature painter and goldsmith. He painted many portraits of the heroes of the age, including Sir Walter Raleigh and Sir Francis Drake.

The Virgin Queen was keenly aware of the power of the portrait in image-making and exerted a high degree of control over the finished product. When Hilliard painted the Queen he recorded that she chose to sit for him in "the open alley of a goodly garden where no tree was near, nor any shadow at all". The portrait, repatriated from an American collection this year, now has a price tag of £85,000.