Controversial Indian-born author Salman Rushdie [Images] is selling his personal archive, which includes two unpublished novels, to a wealthy American University for an undisclosed sum.

According to a report in The Sunday Times, the archive, which also includes personal diaries written during the decade that he spent living in hiding from Islamic extremists, is being bought by the Emory University in Atlanta.

"There is worldwide interest in Rushdie. We are catering for the long-term care of the archive and will welcome scholars from all over the world," Stephen Ennis, of Emory University, said.

The sum involved is likely to match or exceed similar deals. In 2003 Emory bought the archive of Ted Hughes, the previous poet laureate, for a reported $600,000. Julian Barnes, the author of Flaubert's Parrot, is said to have sold his papers to the University of Texas at Austin for $200,000.

Rushdie's two unpublished novels - The Antagonist, influenced by Thomas Pynchon, the American writer, and The Book of Peer - were written in the 1970s. "The Antagonist was a contemporary London [Images] novel, set around Ladbroke Grove where I was living at the time. I think it was embarrassingly Pynchonesque," he said.

Rushdie, 59, said his priority had been to 'find a good home' for his papers, but admitted that money had also been a factor. "I don't see why I should give them away," he said. "It seemed to me quite reasonable that one should be paid."

Rushdie said, "They asked if I'd ever thought about putting my archive anywhere and, to tell you the truth, until that moment I really hadn't. My archive is so voluminous that I don't have room in my house for it and it's in an outside storage facility. I was worried about that and wanted to feel it was in a safe place."

The papers will be open for scholars to study with one key exception: the 'fatwa' diaries that Rushdie wrote under threat of death from Islamic extremists for writing The Satanic Verses.

He spent a decade in hiding under the protection of Scotland Yard after Ayatollah Khomeini, then leader of Iran, called the book 'blasphemous against Islam' in 1989.

Mumbai-born Rushdie won the Booker Prize for his second novel, Midnight's Children, in 1981. It won the Booker of Bookers in 1993.

The sale of his papers, however, has now sparked anger that Britain's literary heritage is being lost to foreign buyers.

The British Library plans to hold a conference to discuss how to stop famous writers' archives being sold abroad. Chris Smith, the former culture minister who chairs the UK Literary Heritage Working Group, said, "It is a very sad day for British literature and scholarship. Our literary heritage is arguably our greatest contribution to culture and we should be taking special care to protect that."

Andrew Motion, the poet laureate, called for the government to remove VAT from unbound papers, which increases the cost of purchases in Britain.

The newspaper quoted Clive Field, the director of scholarship and collections at the library saying, "I am pleased that Rushdie's papers will be preserved in a publicly accessible institution, but disappointed that we didn't have an opportunity to discuss the acquisition of the archive with him ."

Rushdie said the British Library 'never asked me about the archive'.

Emory University enjoys a large endowment thanks to a student who became a senior executive at Coca-Cola, and already holds the archives of poets W B Yeats and Seamus Heaney, as well as Hughes.

Rushdie said, "Emory seems to be very serious about building a collection of contemporary literature. Not only do they have the papers of Hughes and Heaney, but also Paul Muldoon and other writers. I got the sense that they want to collect contemporary novelists as well and it just felt very good to be part of that."

Rushdie, who now lives in New York, has accepted a position as a visiting fellow and will spend a month on the campus in Decatur, a leafy suburb of Atlanta, every year until 2012.

The author may use the diaries as the basis for a book - "I wouldn't want them out in the open. I want to be the first person to have a go at the material, whether as a serious autobiography or as a memoir."

He was ambivalent about the idea of scholars studying his papers - "The whole thing is very bizarre, you know, it's like imagining someone going through your underwear."