The auction of a rare recording made by one of British music's most enigmatic characters has been halted following a bitter row over its ownership.

The music world had been eagerly awaiting the sale of demo tapes made by Nick Drake, the singer-songwriter and guitarist whose reputation soared after his premature death in 1974, with artists as diverse as Robert Smith of the Cure, Martha Wainwright and Blur's Graham Coxon talking up his influence. The six songs on the tapes, recorded on a four-track tape machine in 1967, before Drake had a record deal, are described by auctioneers Ted Owen & Co as "remarkable". The auction guide explains that Drake's "guitar playing is stronger, more baroque, with the voice smoother and more resonant than the highly produced released versions".

Given to folk singer Beverley Martyn, a close friend of Drake, the tapes were insured for £250,000 and there had been predictions that their sale, due on Thursday, would see them fetch more than £300,000. But lawyers representing Drake's estate and his record company have questioned Martyn's claim that she is the tapes' rightful owner and the sale has been postponed.

It is unclear whether the recordings would ever be able to be released publicly. Owen said the original plan had been to auction the tapes as a piece of folk memorabilia, something that would attract a wealthy fan. Well-known Drake enthusiasts include Brad Pitt and George Michael. The tapes include three songs from the seminal album, Five Leaves Left, as well as the much-loved track Mayfair.

"The tracks are very pure and unproduced," said Owen. "There is no hesitation, he just puts it down. It's poignant and beautifully recorded."

Martyn is adamant she is the rightful owner and Owen said he hoped the auction would go ahead in October once the matter was resolved. "I looked after them for 38 years, treasured them," Martyn said. "I know the person who made the tape and they are happy for me to have it. The Drake family even offered to buy it off me eight years ago for £2,000."

The row highlights the huge esteem in which Drake is held, 40 years after he died from an overdose of antidepressants. Since his death, he has been discovered by successive generations who have been drawn both to his music and his tragic aura. His friend, the strings arranger Robert Kirby, once said Drake had seemingly become "the patron saint of the chronically depressed".

The tapes' importance lies in the fact that they are a rare recording of Drake playing his songs in one live take. His shyness meant that he struggled in front of crowds, which made it difficult for him to build up a fan base that would become familiar with his work in his lifetime. "Nick could not handle gigging live," Marytn said. "He just fell apart. He was so disappointed nobody bought his records."

Martyn, who was married to the late folk singer John Martyn and had a two- year relationship with Paul Simon, is an acclaimed musician, and has played with Richard Thompson, Ralph McTell and Jimmy Page. In April she released The Phoenix and the Turtle, her first album in 14 years.

Drake, who came from Tamworth-in-Arden in Warwickshire, would visit her in her native Coventry to talk about the musicians she knew and whom he admired. Later, he would babysit for the Martyns at their flat in north London and went on holiday with them to the south coast. Martyn remembers the first time she met Drake, in a recording studio in London. "He was so beautiful looking," she said. "He had beautiful hands, long fingers, a sensitive face; he looked like a beautiful poet. He was incredibly shy and very nervous with long, gangly legs." Drake, who went to Marlborough public school and Cambridge, cut an isolated figure, according to Martyn, despite his magnetism to women. "He seemed to be asexual to me," she said. "There were never any girlfriends. I had to teach him how to hug. He was a stiff upper lip."

The Martyns were given the tapes by a representative of Drake's record company, Island, a couple of years after his death. It took three weeks before Beverley Martyn could bear to listen to them. "I adored this man. I loved him like he was my precious brother. I knew the effect it was going to have on me. I just cried when I heard it. I played it again and again. It's the most beautiful sound I have heard Nick make."

Martyn, who is in poor health, said she now needed to sell the tapes to raise money. She has earned almost nothing from the music she made with her late husband, from whom she is divorced. "It's getting a bit late for me to hold on to these tapes. And I really would like other people to hear them."

Drake would be surprised by the regard in which he is held today, Martyn said. "Maybe it's to do with the seriousness of him – the tortured soul. This really sad, sad, pretty man … I sometimes wonder if he were still alive whether the people who bought his records would still have the same interest."