Culture Minister Ed Vaizey has placed a temporary export bar on Picasso's Child With A Dove, in the hope that money can be raised to buy back the painting.
The export ban - which will remain in place until December - offers a last chance to keep the painting in the UK.
The work, which has been on public display in Britain since the 1970s, was sold privately earlier this year to an unknown foreign buyer.
It was believed to have been valued at around £50m ($79m).
The picture was sold by Christies auction house on behalf of the Aberconway family in Wales, who have owned the painting since 1947.
One of Picasso's early works - painted when he was around 19 - it is currently on loan to the National Galleries of Scotland.
Mr Vaizey's ruling follows a recommendation by the Reviewing Committee on the Export of Works of Art and Objects of Cultural Interest, administered by Arts Council England.
The Committee recommended that the export decision be deferred on the grounds that the painting was closely tied to the UK's history and national life.
It is also considered to be of outstanding aesthetic importance and highly pertinent to the study of Picasso's early works and his artistic development.
The Committee ruled that it fulfils all three of the Waverley Criteria required to justify an export bar.
"Child with a Dove is a much-loved painting whose iconic status; together with its long history in British collections... make it of outstanding importance to our national heritage," said committee member, Aidan Weston-Lewis.
It is hoped British cultural institutions may collectively be able to raise the funds to prevent its sale and export elsewhere, and keep it within the public domain.
Picasso painted the portrait of a young child clutching a dove and standing next to a multi-coloured ball in Paris in 1901.
The painting, acquired in 1924 by Mrs RA Workman, is one of the earliest and most important works by Picasso to enter a British collection.
It marks a transition into the artist's celebrated Blue Period, when Picasso moved away from a broadly Impressionistic style to a more sparing aesthetic, creating sombre works painted almost solely in shades of blue and blue-green.
Mrs Workman later passed it on to the prominent art collector Samuel Courtauld, who bequeathed it to Lady Aberconway in 1947.
In the 1970s, the painting was loaned out to the National Gallery in London and last year it went on display at the Courtauld Gallery.
Any decision on the export licence application will be deferred until 16 December 2012, with scope for a further deferral to 16 June 2013 should a serious intention to purchase the painting, at the recommended price of £50m, be put forward.