The landmark was sought by Albury businessman Allan Black and Beechworth solicitor Graeme Bailey with bidding starting at $1 million and rising in $250,000 bids.

Mr Black withdrew from bidding at $1.5 million with Mr Bailey successful after negotiating with auctioneer Rod Devlin.

Mr Bailey said he acted on behalf of the new owner whose purchase price was undisclosed.

"I can say that although I was there and did the bidding I am not the purchaser," Mr Bailey said.

He declined to say who the buyer was, however The Border Mail has been told it was a property developer from Sydney suburb of Chatswood.

Mr Black, who owns manufacturing business Wise Living Products, believes $1.75 million was overpriced.

"It's just not worth it," Mr Black said.

"I was surprised at the bid that came through and it had to be a Sydney one to get that price.

"The feeling was that there was not going to be a lot of bidders."

Mr Black said he had considered buying the prison when it first sold for $1.7 million in 2004 and he did not believe the property had changed greatly to result in high appreciation.

"We would have developed the tours, tried to get the community involved through letting clubs using it as a clubhouse and having functions with the tourist side," Mr Black said.

More than 150 attended the auction held in the front yard of the sandstone prison which opened in 1864.

Among them was a descendant of the Kelly bushranging family, Joanne Griffiths.

She is raising money for a Ned Kelly Centre and had hoped it could be housed at the prison.

The Australian Centre for Rural Entrepreneurship had also been eyeing off the jail and had drawn $520,000 in part loan guarantees from the Beechworth community to help its cause.

Indigo councillor Bernard Gaffney said the shire would contact the new owner on behalf of the Victorian Government to discuss public involvement in the prison.

A 20-lot housing estate on the site has previously been backed by the council, but needs heritage approval.