The species has been identified from a mostly complete and well preserved fossil skull that the team has named Teyujagua paradoxa.
The fossil was discovered last year by a team from the Paleobiology Laboratory of the Federal University of Pampa (Unipampa) in Brazil, in a Triassic rock exposure near the city of Sao Francisco de Assis.
The discovery helps to clarify the initial evolution of the group that gave rise to dinosaurs, pterosaurs (flying reptiles), crocodiles and birds.
Archosauriformes include all the extinct dinosaurs and pterosaurs, along with modern day birds and crocodiles.
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The discovery of Teyujagua is important because it lived just after the great Permo-Triassic mass extinction event that occurred 252 million years ago, researchers said.
This extinction wiped out about 90 per cent of all species then living and was probably triggered by giant and intense volcanic eruptions in the eastern part of what is now Russia.
Archosauriforms and their close kin like Teyujagua became the dominant animals in ecosystems on land and eventually gave rise to dinosaurs.
Teyujagua was a small, quadrupedal animal, and grew up to about 1.5 metres in length. Its teeth were recurved with fine serrations and sharply pointed, indicating a carnivorous diet.
The nostrils were placed on the upper part of the snout, a typical feature of some aquatic or semi-aquatic animals, such as modern day crocodiles, researchers said.
Teyujagua likely lived in the margins of lakes and rivers, hunting amphibians and procolophonids, extinct, small bodied reptiles similar to lizards.
"Archosauriforms are spectacularly diverse and include everything from hummingbirds and crocodiles to giant dinosaurs like Tyrannosaurus rex and Brachiosaurus," Butler said.
"Teyujagua fills an evolutionary gap between archosauriforms and more primitive reptiles and helps us understand how the archosauriform skull first evolved," he said.
The research was published in the journal Scientific Reports.