It disappeared from the side of the Poundland store last weekend and was due to be auctioned thousands of miles away in Miami, with Fine Art Auctions (FAA) expecting it to reach up to £459,288.
Slave Labour, which shows a young boy hunched over a sewing machine making Union Jack bunting, appeared on the wall in Wood Green, north London, last May, just before the Diamond Jubilee celebrations.
But Haringey Council said it had been told the sale was halted at the last minute.
Haringey Council leader Claire Kober said: ‘It’s a true credit to the community that their campaigning appears to have helped to stop the sale of this artwork from going ahead.’
Banksy, Wood Green, Haringey
An artist gets to work on the wall where the Banksy mural once stood, as protesters look on in Wood Green
A second piece by the street artist, Wet Dog, which was originally on a wall in Bethlehem, was also pulled from auction.
An FAA spokesman confirmed Slave Labour and Wet Dog had been removed from the sale.
He said: ‘Although there are no legal issues whatsoever regarding the sale of lots six and seven by Banksy, Fine Art Auctions Miami convinced its consignors to withdraw these lots from the auction and take back the power of authority of these works.’
It appeared that a starting bid of $400,000 (£262,450) had been made for Slave Labour before the auction of the art work was halted.
Local protesters had taken to the scene of the mural in Wood Green yesterday, with one street artist painting in protest over the spot where it once stood.
Wood Green councillor Alan Strickland said the withdrawal suggests that the level of international media attention has had a real impact.
But he said they need to know what will happen next, stressing ’we’re half-way there’ and the next step is to get the mural returned.
Scotland Yard has already confirmed they were not investigating any theft.
Banksy, Slave Labour, Wood Green, Haringey
The Banksy piece used to be on the Wood Green wall on side of a Poundland (Picture: PA)
A solicitor for property firm Wood Green Investments, which owns the Poundland site, told the Financial Times that if it denies removing the mural it would spark an international criminal investigation, while admitting to consenting to any sale would mean they ‘become the target of abuse’.
The elusive Banksy has not spoken about the auction sale, but did appear to respond to a question on the Banksy official website asking ‘what do you think about the auction houses selling street art?’
Banksy quotes Henri Matisse, saying: ‘I was very embarrassed when my canvases began to fetch high prices, I saw myself condemned to a future of painting nothing but masterpieces.’
A rat with a sign asking ‘Why?’ also appeared on the wall after the mural went missing, thought by some to be a Banksy response.[metro.co.uk]