Artists' collective fights to stay in Tacheles building visited by thousands.

About 300,000 tourists visit Tacheles every year, attracted by the work of sculptors and squatter artists who have spray-painted the walls and staircases

The building is Berlin's counter- culture temple – a vast graffiti-smeared and bomb-damaged former department store that boasts two bars, a restaurant, cinema, theatre and a warren of dilapidated studios used by a collective of more than a hundred squatter artists and sculptors.

But after nearly 20 years as the German capital's most famous bohemian co-operative, the once idealistic inhabitants of Tacheles have become locked in an unedifying legal dispute with each other, while the building that is their home faces the imminent prospect of closure.

On the floors of the decaying multi-storeyed beehive of a building that is still pockmarked with bullet holes from the Second World War, fears about the imminent demise of one of Cool Berlin's legendary post-communist landmarks are palpable.

"I have been very happy, this is one of the last places where you can be free as an artist," said Andrea Colitti, 48, an Italian painter and veteran Tacheles squatter who moved to the city in the early 1990s after the fall of the Berlin Wall. "We are not going to go without a fight, but we have a big problem finding the money to stay on."

Tacheles, which in Yiddish means "straight talking", is in east Berlin's now chic Mitte district. Billed in guidebooks as the city's last downtown bulwark against capitalism, it is visited by 300,000 tourists annually.

Daniel Child, a student from Sheffield, was one of dozens of photo-snapping Berlin visitors traipsing up the seemingly endless flights of Tacheles stairs, flanked by walls covered in ripped posters and spray-can street art. "I guess that this is what alternative London must have been like in the Seventies," he said. The place still has enough cache to persuade designers such as Donatella Versace to use the work of Tacheles artists.

The building began life as a department store in 1908 and later served as the technical headquarters of Germany's AEG engineering company. It was bombed during the Second World War, yet during East Berlin's communist era, the authorities never managed to raise enough cash to renovate or demolish the building.

When the Berlin Wall fell in 1989, the property, like many others in the former communist East, was occupied by an army of squatters. It soon became an artists' collective. It was once surrounded by scores of other bullet-pocked and decaying east Berlin buildings, but today Tacheles stands alone, marooned in a sea of trendy bars, restaurants and scores of gentrified apartment blocks like an old hippie at a yuppie convention.

The building was bought by the Fundus Group investment fund in the mid-1990s. The group was in no hurry to develop the site, so to avoid the violent clashes between squatters and police, which have become almost routine during Berlin evictions, Fundus negotiated a 10-year lease with the artists in 1998.

With the rent set at a laughable 50 euro cents a year, the arrangement guaranteed the artists a decade of trouble-free squatting. That decade is now over: the lease expired on 1 January and the future of Tacheles is now more uncertain than ever.

Fundus is reported to have run out of cash, because none of its plans to build a five-star hotel and apartments on the site have materialised. The group no longer talks to the media. Instead, the Tacheles building is now in the hands of an official receiver who is negotiating with the bank underwriting the project, and the artist squatters over the collective's future.

However, the credit crunch has dramatically accelerated events: a spokesman for the official receiver, a Berlin lawyer, confirmed that the building will be auctioned off to the highest bidder early this year. He said there could be no guarantees that the building would continue as an arts centre.

"If that happens, it would be a terrible shame," said Linda Cerna, the spokeswoman for Tacheles. "It would mean that we would have to close and the artists would have to move out."

The artists have already launched a campaign to save Tacheles. They have collected more than 20,000 signatures in support of the centre and put forward their own ambitious proposals to form a limited company. They aim to set up an independent publishing house, theatre and dance companies and rent out studios on the premises.

They also have plans for a sculpture park on the building's roof and want to form a foundation that would make them eligible for tax breaks. They insist that Klaus Wowereit, Berlin's Social Democrat mayor, fully supports them. "We are optimistic about the prospects for negotiating an agreement that will enable us to stay on," said Ms Cerna.

Yet such optimism is not shared by other Tacheles dwellers. Ludwig Eben, who runs Cafe Zapata, a restaurant on the ground floor of the building, said: "The most likely outcome will be a forced sale to the highest bidder. It would be nice if the foundation idea worked, but it seems unrealistic."

To make matters worse, Mr Eben and the artists' collective above him are immersed in a seemingly endless legal conflict. The artists say the cafe manager has not paid his water and electricity bills for decades. Mr Eben says the current group representing the artists was set up illegally and has no right to speak for Tacheles.

Berlin property experts are convinced that market pressure will eventually force projects like Tacheles from the city's increasingly mainstream-looking centre. After the Berlin Wall fell there were 200 squatted properties in Berlin. Now that figure is down to a handful.

"Time and trends are just not on the side of Tacheles," said Frank Noack, a seasoned Berlin estate agent.