The message, dated July 4 1940, was sent the day after Britain attacked the French fleet in west Algeria to prevent its assets from falling into enemy hands.
In the top-secret message, Churchill justified the raid, which claimed the lives of 1,297 French sailors.
"British naval forces morning 3rd July took up station outside Oran and asked the French naval authorities to take certain steps to prevent a number of important French naval units at this port from falling into German hands undamaged," he said in the telegram, published in the Times newspaper ahead of the auction.
"We cannot tell what the consequences may be, but every precaution should be taken in case the French declare war against us," he added.
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Churchill feared that an armistice signed between the Nazis and France would leave its Navy vulnerable.
The telegram was sold today for 1,600 pounds (1,900 euros, USD 2,500), nearly 10 times more than its pre-sale estimate, according to auction house International Autographs Auction.
It was addressed to John Dill, Chief of the Imperial General Staff, and was sold by a family member, according to the Times.