Elizabeth Taylor -- Family Jewels and a Ton of Cash Held Hostage ... Liz's Trust Sues

One of Elizabeth Taylor's iconic jewelry pieces fetched almost $9 million in an auction -- but the buyer backed out, and now Liz's trust is suing famed auction house Christie's Inc. for screwing up the deal.

Lizzie's Taj Mahal diamond necklace -- a gift from Richard Burton -- was one of the items hawked during Christie's 2011 auction ... which took in a whopping $156,756,576. Problem is ... the guy who bid $8,818,500 for the necklace backed out because the massive heart-shaped diamond wasn't up to snuff for him.

Meanwhile, Christie's had already paid Taylor's trust for the necklace ... and when the guy backed out ... the auction house demanded the cash back. As you can imagine, they weren't in the giving mood. In fact, the Taylor trust is now suing Christie's.

According to the suit ... Christie's is holding hostage millions of dollars gained from the auction of other items -- including a Bulgari ring and a Valentino fur evening bag. The Bulgari alone sold for $2.9 million.

The Taylor trust says Christie's is strong-arming -- refusing to hand over cash from all the other items ... unless it gets back the Taj Mahal funds.

The Taylor trust wants the court to tell Christie's to go kick rocks.

A rep for Christie's says the suit "stems from Christie's seeking the return of a small portion of proceeds due to the cancelled sale of a single item from the 1,800 lot collection." The rep added they look forward to a "speedy resolution" on the matter.