What is more, the creature, which lived 60 to 70 million years before T. rex, had fluffy feathers covering its body.
Xing Xu and colleagues from the Chinese Academy of Sciences in Beijing found their tyrannosauroid in the famous fossil beds of Liaoning Province.
Xu told Nature magazine the discovery would help us understand how some early dinosaurs controlled their body heat.
The dinosaur called Dilong paradoxus was about 1.5 metres long and lived between 128 and 139 million years ago.
The researchers found a partial skeleton with a nearly complete skull, together with fragments from other individuals.
Productive ground
The team describes the animal as "small and gracile" with "relatively long arms with three-fingered hands".
The dinosaur is said to show the distinctively square-snouted profile of its much larger and more famous Late Cretaceous (70-65-million-year-old) cousin.
Evidence of hair-like "protofeathers" was located on the tail and jaw of the animal.
The fossil evidence shows T. rex had scales, not feathers. But Xu suggests the fierce beast may have been like some large mammals today, such as elephants, which lose most of their body hairs as they mature.
"We don't have any evidence that T. rex was covered with feathers," Xu, from the Institute of Vertebrate Palaeontology and Palaeoanthropology in Beijing, told BBC News.
"For the last few years in the western area of China, there have been many feathered dinosaurs found from that area. This latest find is a primitive tyrannosaur covered with primitive feathers.
"So based on all this other evidence, we can conceivably say that even T. rex had fluffy feathers for some stage in her life."
The team includes co-workers from the American Museum of Natural History, New York, and the Museum of Natural History, Tianjin.
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