The star, dubbed HR 5171 A, located in the constellation Centaurus is the largest known member of the family of yellow stars to which our Sun belongs.
It is also one of the ten largest stars found so far - 50 per cent larger than the famous red supergiant Betelgeuse - and about one million times brighter than the Sun.
The team led by Oliver Chesneau of the Cote d'Azur Observatory in Nice, France, which studied the star with the Very Large Telescope in Atacama, Chile found that the yellow hypergiant star is much bigger than was expected, measuring 1,300 times the diameter of the Sun.
Yellow hypergiants are very rare, with only a dozen or so known in our galaxy - the best-known example being Rho Cassiopeiae.
They are among the biggest and brightest stars known and are at a stage of their lives when they are unstable and changing rapidly.
Due to this instability, yellow hypergiants also expel material outwards, forming a large, extended atmosphere around the star.
The team also discovered that HR 5171 A has a companion star. The companion star orbits HR 5171 A every 1,300 days.
"The new observations also showed that this star has a very close binary partner, which was a real surprise. The two stars are so close that they touch and the whole system resembles a gigantic peanut," said Chesneau.
"The companion we have found is very significant as it can have an influence on the fate of HR 5171 A, for example, stripping off its outer layers and modifying its evolution," Chesneau said.
Despite its great distance of nearly 12,000 light-years from Earth, the object can just about be seen with the naked eye by the keen-sighted.
HR 5171 A has been found to be getting bigger over the last 40 years, cooling as it grows, and its evolution has now been caught in action, researchers said.
Only a few stars are caught in this very brief phase, where they undergo a dramatic change in temperature as they rapidly evolve.