LONDON (Reuters) - A gold encrusted dagger once owned by the Indian emperor who built the Taj Mahal has sold for more than 1.5 million pounds ($3 mln) at auction in London -- three times its expected price.

The dagger, once part of Shah Jahan's royal collection, was made in the early 17th century, just after the Mughal emperor came to power.

Experts had estimated it would sell for about 500,000 pounds but it fetched 1.7 million pounds when an unidentified buyer snatched it up at Bonhams auction house this week.

"Objects of this quality and importance come to the market very, very rarely," Claire Penhallurick, the head of Bonham's Indian and Islamic Department said.

Inscriptions on the back of the blade included Jahan's official titles, date and place of birth, and an "honorific parasol" -- an ancient pan-Asian symbol of divinity and royalty.

Jahan, who ruled from 1628 to 1658 and is said to have had a love of beautiful objects, built the Taj Mahal as a mausoleum for his wife Mumtaz Mahal whose death during the birth of their 14th child devastated the ruler.

"The fabulous sardonyx-hilted dagger ... is typical of Shah Jahan's taste and character in a number of ways," Scottish historian William Dalrymple, wrote earlier this year.

"The hilt reflects his love of rare and precious stones; its workmanship represents the skills of the Mughal atelier at this peak of refinement... and the weapon itself is emblematic of its owner's sometime murderous tendencies."

In his last years, the emperor was imprisoned by his son Aurangzeb and is said to have spent his remaining days gazing at the Taj, located on the outskirts of Agra, from his prison cell in a nearby fort.

His dagger was one of several items auctioned from the private collection of wealthy French textile businessman Jacques Desenfans. The collection fetched three million pounds, Bonhams said.

(Reporting by Andrew Hough; Editing by Luke Baker)