The planet is believed to be too hot to sustain Earth-type life, but could consist of 75 per cent water.
Evidence suggests it has an atmosphere, and astronomers believe it to be more Earth-like than any ''exoplanet'' found outside the Solar System so far.
The planet is classified as a ''super-Earth'', half way in size between small rocky planets such the Earth and ice giants similar to Uranus and Neptune.
Although its parent star is a dim ''red dwarf'' 3,000 times less bright than the Sun, it hugs the star so closely that its surface temperature is an oven-hot 200C.
At a distance of just 1.3 million miles, the planet makes one year-long orbit of the star every 38 hours.
The planet was discovered circling the star GJ1214 with an array of small ground-based telescopes no larger than those used by many amateurs.
The MEarth Project employs eight identical 16-inch diameter telescopes monitoring a list of 2,000 red dwarf stars. Red dwarfs are the most common type of star in the Milky Way galaxy.
Together the telescopes are looking for changes in brightness that might betray the presence of a planet crossing in front of a star. Red dwarfs lend themselves to this approach to planet finding because they are so faint.
By measuring the dip in brightness caused by a ''transit'' scientists can calculate a planet's density and make an educated guess about its composition.
The new planet, GJ1214b, is thought to be three quarters composed of water and ice and about one quarter rock.
''Despite its hot temperature, this appears to be a waterworld,'' said graduate student astronomer Zachory Berta, from the Harvard-Smithsonian Center for Astrophysics in the US, who spotted the first hints of the planet among the observational data.
''It is much smaller, cooler and more Earthlike than any other known exoplanet.''
He said some of the planet's water should be in the form of exotic materials such as Ice Seven - a crystalline form of water that exists at pressures greater than 20,000 times the Earth's sea-level atmosphere.
The scientists believe something besides the planet's surface must be blocking light from the parent star - probably a surrounding atmosphere that may contain hydrogen and helium.
Turning the Hubble Space Telescope towards the planet may allow astronomers to discover its composition.
Dr David Charbonneau, also from the Harvard-Smithsonian Center, who heads the MEarth Project, said: ''Since this planet is so close to Earth, Hubble should be able to detect the atmosphere and determine what it's made of. That will make it the first super-Earth with a confirmed atmosphere - even though that atmosphere probably won't be hospitable to life as we know it.''
The discovery is reported in the journal Nature.
