Police believe 67-year-old Richard Scott is the man responsible for a shotgun raid on a gallery in Mayfair, central London, last March, in which the robber escaped in a taxi.
Mr Scott, who according to his autobiography, Gentleman Thief, had a colourful past as a famous cat burglar, wanted around pounds 75,000 for the work Tete de Femme (Woman's Head), a jury at Snaresbrook Crown Court in south London was told.
But his plan to sell on the painting was foiled after the man he passed it on to tried to negotiate a pounds 650,000 deal with a team of undercover police officers posing as art dealers, the court heard.
Andrew Campbell, for the prosecution, said the painting had been snatched from the Lefevre Gallery last year after a man had walked in carrying a holdall.
Mr Campbell said the man asked how much a Picasso on display was worth and was told pounds 650,000.
"He then said to the people working in the art gallery, `I've got a shotgun and want that painting'."
He took the painting off the wall and walked to a taxi which he had left waiting outside the gallery and ordered the driver at gunpoint to go to an address in Wimbledon, south-west London.
Within hours of the robbery Mr Scott had met an accomplice, Ronald Spring, 70, to give him the painting which had been cut from its frame and placed in a small red suitcase, the jury heard.
Spring told the court that Mr Scott had demanded payment of pounds 70,000 to pounds 75,000 within seven days for the abstract portrait.
Mr Campbell said that Mr Scott later claimed he was simply acting as "an innocent go-between".
The police "sting" came after Spring had contacted an undercover officer, known only as Patrick, on the morning of the Picasso raid to offer him the picture.
The court heard that Spring had earlier claimed his accomplice was sizing up a pounds 5m painting to be stolen at a later date.
The court also heard that Spring, of Southgate, north London, had offered the team of detectives posing as art dealers a whole series of deals in the months leading up to the Picasso theft.
Seven days after the robbery police arrested Spring at his offices in central London, as he attempted to hand over the Tete de Femme after it had been authenticated by an officer posing as an art valuer.
The solicitor, who has already pleaded guilty to a charge of conspiracy to handle stolen goods, agreed with police to take part in a counter operation against his alleged accomplice, the court heard.
The two men agreed to meet at the Sherlock Holmes Hotel on Baker Street where Spring was to hand over Mr Scott's share of the proceeds from the Picasso sale.
Mr Scott was handed a bag of cash in full view of police officers after he told him he had to settle for less than expected, it was claimed.
Mr Campbell told the court that Mr Scott smiled as he was shown the cash, before he was arrested by undercover detectives.
Earlier Mr Campbell had told the jury: "Mr Scott is a man who has made his living as a cat burglar. He is actually quite famous, he has written a book."
Mr Campbell added: "The victims of his burglaries include Sophia Loren and Elizabeth Taylor. But according to him he has given all that up."
Mr Scott, a property developer from north London, denies a charge of conspiracy to handle stolen goods.
The court heard that the two men, who first met in 1977, had initially discussed art thefts in April 1995 during a series of meetings following the publication of Mr Scott's autobiography.
The case continues.