In life, the Mexican artist Frida Kahlo was as famous for her tumultuous bisexual relationships as her surreal self-portraits.

Five decades after her death, she is at the centre of a new controversy as bizarre and gripping as any of the scandals that define her in the popular imagination. The uproar follows the discovery of an astonishing trove of letters, notebooks, paintings, sketches and personal effects that is either one of the greatest art finds of the century or the most brazen hoax since the Hitler diaries.

Following a series of increasingly heated exchanges, the dispute about the archive’s authenticity has developed into a Mexican stand-off that is about to split the art world down the middle. The two gangs have their guns drawn, and both are refusing to back down. On one side is the entire might of the Kahlo establishment, including her biographer, the executor of her estate, and almost all of the most prominent scholars of her work. Facing them is an antiques dealer in a small town who says he is being bullied because the collection he has unearthed threatens to disrupt a lucrative monopoly.

Kahlo is a feminist icon. Her paintings are frank depictions of pain, sexuality, love and doubt. “I paint my own reality,” she declared, casting an unflinching eye on her marriage to fellow artist Diego Rivera, his betrayals, her many lovers, including exiled Russian revolutionary Leon Trotsky and jazz age sex symbol Josephine Baker, the traumatic after-effects of a serious road accident in her youth and, later, the amputation of her right leg.

The collection of 1200 items, stored in the back room at La Buhardilla Antiquarios in San Miguel De Allende, Mexico, is overflowing with intimate details. There are diary entries describing Kahlo’s sexual encounters, letters complaining about Rivera’s infidelity, recipes, keepsakes, hotel bills and scores of art works, from doodles to composites of her most famous paintings.

In a journal, Trostky is represented by a skull, with the inscription: “I remember that bastard for the moments of pleasure.” A letter recounts a meeting with folk singer Chavela Vargas: “Extraordinary, lesbian … I craved her erotically.”

To New York dealer Mary-Anne Martin, a specialist in Latin American art, this merely shows that the forgers knew salacious details would arouse the most interest. “The content is being manufactured, working backwards from known biographical details,” she says. “The entry about ‘being bisexual’ is not even spelled correctly. Also, in the 1940s, bisexual meant hermaphrodite. We don’t think the term existed when these diaries were supposedly written. They’re full of funny mistakes like that.”

The owner, Carlos Noyola, has vigorously defended his collection, insisting there’s a good reason it stayed hidden for so long. Kahlo, he claims, passed it to a sculptor friend, Abraham Jimenez Lopez, to keep her most intimate confessions separate from the official archive at her home, the Casa Azul in Coyoacan. Lopez respected her wishes for 25 years before selling it to a lawyer, Manuel Marcue, who kept it secret in turn, in a safe guarded by a pack of dogs at his home.

Martin says this is “exactly the kind of provenance that you have to be suspicious of, because it’s unverifiable”. Her copy of Finding Frida Kahlo, the coffee table art book full of photographs of the disputed collection, which is set to be available in November, is covered in Post-It notes detailing discrepancies.

The most glaring, she says, is a self-portrait in which Kahlo holds amputated legs, which is very clearly drawn from a photograph taken 20 years before the operation.

When the book was announced, a group of celebrated Kahlo scholars, including Carlos Phillips Olmedo, the guardian of her trust; and Salomon Grimberg, the author of her catalogue, wrote an open letter to Mexico’s arts council urging it to “put a stop to this type of fraud”.

Noyola says he has been scrupulous in proving the archive’s authenticity. The graphologist he hired confirmed that the handwriting is Kahlo’s. Chemical analysis of the paint showed that it dates from the 1940s. Kahlo’s protegees Arturo Garcia Bustos and Arturo Estrada believe it to be genuine. He believes the establishment is crying fraud because it’s a closed shop, worried about losing its monopoly on Kahlo’s legacy.

“They have always controlled the financial value of her work and this new collection is outside their control,” he says. “Their motivation is exclusively commercial. None of these critics have seen a single piece of the archive in person. What makes me very sad is that Mexico’s art institutions have not shown any interest in this archive. They are a mafia. But Frida Kahlo belongs to the world, not only to Mexico.”

The stakes are certainly high: three years ago a Kahlo self-portrait, Roots, sold for more than $5 million at Sotheby’s. It was rumoured that Madonna was the buyer. In the past, Martin has sold single pages from Kahlo’s diary for as much as $200,000 each.

Carlos Noyola is in negotiations with a gallery in Tucson, Arizona, to exhibit the collection there early next year. Meanwhile, images from the archive are being passed around on the web, intertwining Kahlo’s reality with other people’s fantasies. “My greatest hope would be that this book could be stopped before it gets out too far, because I think it will do a lot of damage,” Martin says. “Were these things to be accepted, then anything goes.”