The medal, awarded to Sidney Godley, of East Grinstead, West Sussex, was expected to fetch up to 180,000 pounds.
He received the top military honour from King George V in 1919 after four years as a prisoner of war.
Godley manned a machine-gun position defending Nimy Bridge in Mons while under fire from German soldiers in the first weeks of the war, the BBC News reported.
Before the sale, Oliver Pepys, of Spink auction house, in London, described the medal as "hugely important".
Godley, who was 25 when he was sent to the Western Front with the 4th Royal Fusiliers, was badly wounded in the attack, on August 23, 1914.
He had shrapnel in his back and a bullet in his skull, but protected British positions in the face of a German onslaught until he was captured.
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During Godley's four years as a prisoner, he was told by his German captors that he had been awarded with the honour and was invited to dine with the Germans one Christmas Day in recognition of it.
Godley escaped in 1918 and died in 1957, aged 68. After his death, blue plaques have been placed at East Grinstead Town Council offices and at the house in Torrington Drive, Loughton, where he lived for some time.