Chakradharpur Sub-divisional officer Prakash Birsa Lakra said it was spotted during the construction of a building to house the LIC after demolishing the old two-story building on Tuesday.
Lakra said the Archaeological Survey of India would be informed about the sighting of the tunnel.
Quoting old-timers, the SDO said the one kilometre-long tunnel was terminated at 'Raja Badi', the residence of the then King.
Believed to be of the time of Arjun Singhdeo, a king of Porahat in West Singhbhum, the tunnel had been in the news for the last over three decades.
"We were told in the 1970s about the existence of a long tunnel touching one end to another end and was built during the reign of the King," says Shekhar, who was born and brought at Chakradharpur.
"We used to organize Saraswati and Ganesh Puja in the one room concrete structure, which was called 'patal ghar', but never went inside it apprehending of the tunnel