They have named it Timurlengia.
A study of the 90-million-year-old beast suggested its ears and brain were crucial in Tyrannosaurs' dominance.
"We have a totally new species of dinosaur," explained lead researcher Dr Stephen Brusatte from the University of Edinburgh.
"It's one of the very closest cousins of T. rex, but a lot smaller - about the size of a horse.
"And it comes from the middle part of the Cretaceous period - a point where we have a huge gap in the fossil record."
This "frustrating" gap has made T. rex - which was found later in the period and was up to 13m head to tail - something of an evolutionary mystery. That is what this find has helped to resolve.read more on bbc link=http://www.bbc.co.uk/news/science-environment-35806780