One of his works depicts an auction house full of bidders with a painting on the wall that says: "I can't believe you morons actually buy this shit".
A video showed shocked onlookers taking photographs of the aftermath, as staff took the work, a stencil spray painting, down from display.
"We've just been Banksy'ed", Alex Branczik, Sotheby's senior director, told the crowd after the shredfest, adding he hadn't known ahead of time that this was going to happen and that "tonight we saw a little piece of Banksy genius".
Just after it was sold, an alarm was triggered from within the frame and guests watched helplessly as the canvas artwork slipped through the frame and shredded into smaller strips.
Mehdi Ben Cheikh, a Parisian street art specialist, said the stunt was "in the same vein as his performance in NY, which questions and criticises the limits of the art market".
At present, it is still unclear as to whether the value of Girl With Balloon will decrease or be enhanced as a result of being shredded.
"It appears we just got Banksy-ed".
"Banksy did it again to the art market that he so despises", he said about the latest prank by an artist who continues to mess with the conventions of the art world.
"We are busy figuring out what this means in an auction context", Branczik said. "We are in discussion about next steps".