The Athenaeum and Mechanics Institute building in the Octagon, near the Regent Theatre, was bought in October 2007 from the Athenaeum Society for $1,130,000.
At the time, the council said the land could be a potential site for an 800-seat theatre or could be incorporated into a cultural sector associated with the Regent Theatre.
However, the 142-year-old building was put on the market last week and will be auctioned on September 14, unless sold before then.
The building was described as "a unique development opportunity in the heart of ... Dunedin's premium hospitality precinct".
Council property manager Robert Clark said when contacted the building was being sold because it was no longer needed.
"It is surplus [to requirements] and it has been agreed that there are no advantages to retaining it."
The building has three tenants - two cafe/bars and the athenaeum society library - and generates rental income of $63,500 per annum, excluding GST, but Mr Clark said a sale would outweigh the advantages of the income.
The council would decide what the sale funds were used for, he said.
Because the building was being auctioned, it would not be appropriate to suggest what price the council was hoping for, he said.
It has a rateable value of $1.25 million and a land value of $980,000.
An athenaeum is an educational facility or library.
Dunedin's athenaeum began offering educational classes to working people in the mid-19th century. It merged with the Mechanics Institute, which had similar aims, in 1859.
The merged organisation provided lectures for members and opened the city's first semi-public library.
