The piece, called "Les Femmes d'Alger (Version 'O')," drew massive crowds and media attention at the Christie's sales room Monday night, in anticipation of a new high-water mark in the art market.
The hammer price came down at $160 million. Including the auction fees, the painting's price rang in at $179.37 million.
The buyer and seller have so far remained anonymous.
The cubist painting, created in 1955, was part of a special sale at Christie's called "Looking Forward to the Past." The entire lot was expected to bring in a total of more than $500 million.
Les Femmes d'Alger (Version 'O') was last sold at auction in 1997 for $31.9 million. The famed collector Victor Ganz had bought the piece—along with the 14 other works in the same series—for roughly $212,000 in in 1956.
The Picasso price marks a new top in the increasingly frothy art market. The previous record-holder for the most expensive work sold at auction was a triptych by Francis Bacon that sold in 2013 for $142.4 million, including commission.
Femmes d'Alger (Version 'O') is considered one of the most important Picasso masterpieces still in private hands. Among the 15-piece series, which looks back on the work of the French painter Eugene Delacroix, it is considered the best.
While the painting is the most expensive ever sold at auction, other paintings have sold for far more in private sales. Picasso's "La Rêve"was reportedly purchased by billionaire investor Steve Cohen in 2013 for $155 million. Similarly, a Gaugin piece painted in 1892 was reportedly sold for $300 million in February.