A dig of Harlaa - a city 120 kilometres (km) from the Red Sea coast and 300 km from Addis Adaba - revealed a 12th- century mosque, evidence of Islamic burials and headstones, glass vessel fragments, rock crystal,glass beads, imported cowry shells and pottery from Madagascar, Maldives, Yemen and China.
The architecture of the mosque is similar to those found in Southern Tanzania and Somaliland, showing connections between different Islamic communities in Africa, researchers said.
The settlement, which is around 500 metres by 1,000 metres has buildings and walls constructed with large stone blocks - leading people to assume only those with enormous stature or strength could have built it.
The size of some of the building stones found created a local legend that the area had been home to giants.
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"The archaeological findings suggest this place was home to a very mixed community. Farmers had been finding strange objects, including Chinese coins, as they were working on their land, and a legend began that the area was home to giants," researchers said.
They used some technology usually associated in that period with jewellers in India, suggesting trade or immigration from there to Harlaa, researchers said.
"We know jewellery was being made here for trading into the African interior, and materials to do this came in from the Red Sea, East African Coast and possibly India, but we don't know what was given in exchange for that jewellery," Insoll said.
The discoveries will be exhibited in a heritage centre. Some findings will be displayed in the country's national museum in Addis Ababa.