The smallest shop in Melbourne has sold for, nearly but not quite, the city's highest price.

The tiny boutique coffee outlet, a mere three square metres in size, located in Little Collins Street's art deco Causeway building, sold for $380,000 at a hotly contested auction on Thursday.

The cupboard-sized shop's fate was sealed with a final offer of $380,000. Credit:Angela Wylie

Eight bidders fought over the micro shop before it was sold for what is believed to be the second highest price - on a per square metre basis - paid for a retail store in Melbourne.

A large crowd of onlookers and prospective buyers watched Fitzroys auctioneer David Bourke take the opening $230,000 bid for the property.