If you ever fancied owning a fort in Rajasthan, now is your chance. The government of the western Indian state is putting thousands of properties on sale. But be warned, the competition for the best of the 100-room palaces and fairytale castles will be steep. Your rival bidder is likely to be the original owner – or at least a descendant.

Properties include a fort at Madhorajpura near the famous pink city of Jaipur with a starting price of £650,000. For those on a budget, there are merchants' family houses from the 18th and 19th century for less than £15,000 – though some are a little the worse for wear. For lottery winners, there is the vast fortified palace at Badnore with its double sets of battlemented walls, its elephant-proof gate and its dozens of individually decorated balconies, for £70,000 rental per year. For those unwilling to risk long drives across India's western desert to their new homes, there is even a palace in the centre of Delhi, which the Rajasthani government recently reclaimed as its own.

The new scheme, launched last month, is aimed at raising money for local councils. Kiran Soni Gupta, the senior official overseeing the sale, said that cash paid for the properties would "go into the general kitty" and be used for development of small villages and towns.

Rajasthan is one of the poorest Indian states. Around a third of its 60 million inhabitants are illiterate and more than half of children under the age of two are malnourished. Many villages lack basic infrastructure such as all-weather roads and sanitation.

Gupta said the properties to be auctioned were nazool, which means they were taken over by the state from their former owners after India became independent in 1947. Often princes and maharajahs, with their own territories absorbed into the new nation and faced with massive maintenance bills, had no option but to cede ownership of their palaces and forts to the new nation's government.

The sale is hoped to give a major boost to the tourist trade. Around a third of India's 5 million tourists per year visit Rajasthan, many attracted by its heritage hotels. The state has also become a popular venue for celebrity weddings, such as that of singer Katy Perry and comedian Russell Brand last year.

Randhir Singh Mandawa, general secretary of the Indian Heritage Hotels Association, welcomed the move.

"India does not even have 1% of world tourism and it's a chicken and egg situation with the lack of infrastructure," he said. "The potential is huge."

Mandawa, who runs a hotel in Jaipur, said "beautiful properties" in the heart of the city were available. India's strict ownership rules would prevent any "mafia types" buying up palaces or forts, he said. Currently foreigners need local partners to buy most properties in India.

Whoever buys the castles, forts and havelis (mansions) may face big maintenance bills. "You buy the property as it is. Any repairs are up to you to do," said Gupta, the bureaucrat. Many of the most spectacular properties are barely habitable.

Others in the running are the heirs of the original owners. According to the local India Today magazine, Gaj Singh, the maharajah of Jodhpur, is hoping to get back the vast citadel of Jalore which was given to the state for maintenance on the death of his father and then passed on to the Rajasthan state archaeological department.

VP Singh, a Rajasthani politician and hotelier whose father, the raja of Badnore, sold the huge Badnore fort to the government for less than £300 in 1960 is also looking to reclaim the family seat.

"It should be the descendants of the owners who take them back. It took my family 500 years to build the fort. The government abandoned it. If it isn't the heirs who take these places back, how can you call it 'heritage'?" he said yesterday.