An Aboriginal artwork that had been tipped to fetch $1 million failed to sell at auction in Melbourne last night.

The painting, "Uluru" by artist Rover Thomas, was passed in for $675,000.

The director of Aboriginal art at Sotheby's, Tim Klingender, says it seems cash-strapped institutional galleries could not afford the work.

"It's a shame that the institutions at the moment have no money, otherwise I'm sure we would have had bidding from the National Gallery of Australia or the other national state institutions," he said.

"At the moment, they have no budgets for Indigenous acquisitions.

"There's no director at the National Gallery of Australia ... I guess the acquisitions budget is in limbo at present."

But Mr Klingender is still happy with the results from other pieces offered last night.

"It was one of the most extraordinary sales, there were so many lots that have sold well above $100,000 in price and record prices across the board," he said.

"We're on target to set a new record for an Aboriginal art auction.

"It really is extraordinary, the bidding in the room and on the phones for that matter, things have been selling all over the world."