The ornate gown was designed by David and Elizabeth Emanuel, who created Diana's wedding dress. It features gold sequins, crystals and pearl beads and comes with a matching headband, optional sleeve panels and a petticoat.
The dress had been expected to fetch up to 80,000 pounds but went for 102,000 pounds at London auction house Kerry Taylor, where it was bought by an overseas museum.
Kerry Taylor Auctions described the dress as having a "pretty, fairy-tale princess feel to it".
The auctioneer, holding the Passion for Fashion auction in London yesterday afternoon, said it "fitted her perfectly" and she chose to wear it on many occasions -- often choosing to team it with a diamond tiara, rather than the headband.
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Diana wore it at a banquet at the German Ambassador's residence in London in July 1986, and to the Royal Opera House for a performance of Ivan the Terrible by the Bolshoi Ballet later in the same month.
The dress was part of the Emanuels' Diaghilev collection, which was inspired by Leon Bakst's geometric designs for Diaghilev's Ballets Russes.
"Elizabeth Emanuel said the Princess told her she 'loved it," a spokesman for the auction house said.