The discovery made last year in a 35-meter-deep fringing-reef cave off they said on Wednesday in the British journal "Proceedings of the Royal Society B."
In order to classify the new animal, the researchers collected eight specimens, about six to nine centimetres long and found a new family, genus and species, giving the animal the latin name Protoanguilla palau, by using hand nets and lamps.
Researchers then carried out DNA tests to assess the fish's place in the eel genetic history.
"In some features it is more primitive than recent eels, and in others, even more primitive than the oldest known fossil eels, suggesting that it represents a 'living fossil' without a known fossil record," wrote the scientists.
The new species has few of the anatomical characteristics of modern eels, despite 819 species previously being listed and grouped into 19 families, which led scientists to create a new taxonomic family, Protoanguillidae to describe its relationship to other eels.
The name comes from the Greek word "protos," meaning first, and the Latin word for eel, anguilla.
In contrast, scientists say its features resemble those of primitive eels which lived in the early Mesozoic era, back when dinosaurs were beginning their domination of the planet.
The similarities include a disproportionately large head, a short compressed body, collar-like openings on the gills, rays on the caudal fin and a jawbone tip called a premaxilla, according to the study.
The results of the study suggest the Protoanguilla lineage must have more common in the past, because the undersea ridge where its cave in the Republic of Palau home is located is between 60 and 70 million years old found.
"In some features it is more primitive than recent eels, and in others, even more primitive than the oldest known fossil eels, suggesting that it represents a 'living fossil' without a known fossil record," the scientists added.
The discovery was made in March last year by a team led by Masaki Miya of the Natural History Museum and Institute in Chiba, Japan, Jiro Sakaue from the Southern Marine Laboratory in Palau and G David Johnson from the Smithsonian Institute in Washington DC.
The term "living fossil" was coined by Charles Darwin in his book On the Origin of Species and is used to describe species that have survived for millions of years, exploiting niches that are so stable that there is little pressure on them to evolve.