"Live birth is well known in mammals, where the mother has a placenta to nourish the developing embryo," said Professor Jonathan Aitchison from University of Queensland in Australia.
"Live birth is also very common among lizards and snakes, where the babies sometimes 'hatch' inside their mother and emerge without a shelled egg," Aitchison said.
Until recently it was thought the third major group of living land vertebrates, the crocodiles and birds (part of the wider group Archosauromorpha) only laid eggs.
He said the new fossil was an unusual, long-necked marine animal called an archosauromorph that flourished in shallow seas of South China in the Middle Triassic Period.
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The creature was a fish-eater, snaking its long neck from side to side to snatch its prey.
Its fossil was one of many astonishingly well-preserved specimens from new "Luoping biota" locations in south-western China.
Professor Jun Liu from Hefei University of Technology in China said the researchers were "excited" when they first saw this embryonic specimen.
He said the embryo was inside the mother's rib cage, and it faced forward; swallowed animals generally face backward because the predator swallows its prey head-first to help it go down its throat.
The small reptile inside the mother was an example of the same species, researchers found.
"Further evolutionary analysis revealed the first case of live birth in such a wide group containing birds, crocodilians, dinosaurs and pterosaurs among others, and pushes back evidence of reproductive biology in the group by 50 million years," Liu said.
Professor Chris Organ from Montana State University in US said evolutionary analysis showed that this instance of live birth was also associated with genetic sex determination.
"Some reptiles today, such as crocodiles, determine the sex of their offspring by the temperature inside the nest," he said.
The research was published in the journal Nature Communications.
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