The discovery was made possible after the fossilised skull remains believed to be around 70 million years old were found in icy northern Alaska.
Scientists analysed the partial skull roof, maxilla, and jaw, recovered from Prince Creek Formation in Alaska, of the dinosaur originally believed to belong to a different species.
They then compared the fossils to known tyrannosaurine species.
Their analysis showed that the cranial bones represent Nanuqsaurus hoglundi, a new tyrannosaurine species closely related to two other tyrannosaurides, Tarbosaurus and Tyrannosaurus.
This new dinosaur is estimated to be relatively small, with an adult skull length estimated at 25 inches, compared to 60 inches for T Rex.
The new species likely inhabited a seasonally extreme, high-latitude continental environment on the northernmost edge of Cretaceous North America.
The authors suggest that the smaller body size of N hoglundi compared to most tyrannosaurids from lower latitudes may reflect an adaptation to variability in resources in the arctic seasons.
Further diversification may stem from the dinosaurs' partial isolation in the north by land barriers, such as the east-west running Brooks Range, researchers said.
Although the preserved elements of N hoglundi are fragments, the researchers point to morphological data to provide support for its place among derived tyrannosaurines.
This discovery may provide new insights into the adaptability and evolution of tyrannosaurs in a different environment, the Arctic.
"The 'pygmy tyrannosaur' alone is really cool because it tells us something about what the environment was like in the ancient Arctic," said Anthony Fiorillo from Perot Museum of Nature and Science, Texas, who carried the analysis with Ronald S Tykoski and colleagues.
"But what makes this discovery even more exciting is that Nanuqsaurus hoglundi also tells us about the biological richness of the ancient polar world during a time when the Earth was very warm compared to today," said Fiorillo.
The finding was published in the journal PLOS ONE.