The discovery of a small furry beast from the Jurassic era has given scientists fresh insights into the evolution of the first mammals on Earth. The fossilised remains of the squirrel-sized animal that plodded rather than scampered, came from rock dated to 165m years ago, when feathered dinosaurs shared the land.

Named Megaconus, or "large cusp", after its distinctive teeth, the animal was unearthed in Inner Mongolia where it had been preserved in volcanic ash that settled in a freshwater lake. It is thought to be an early relative of mammals, and has some mammalian features, while others are more commonly seen in reptiles.

Preserved among the remnants is evidence of fur and a keratinous spur that jutted from the hind ankle and was probably used to deliver poison to predators. The bones of its middle ear were more primitive, and attached to the jaw as in reptiles. The discovery shows that animals evolved to have fur before the first true mammals emerged. The fur was primarily for insulation, but may also have served a sensory purpose.

The animal belongs to a group called the haramiyids, whose existence was previously based on the scant fossil evidence of isolated teeth. Megaconus had long, rodent-like teeth able to chew plants and munch on insects and worms.

"The teeth have been studied since the 19th century, but nobody had an idea what these animals looked like," said Thomas Martin, a scientist on the team at the University of Bonn.

Details of the discovery are reported in the journal Nature.

Martin said the warm-blooded animal foraged at night and lived on the shores of the shallow freshwater lake where its remains were eventually recovered 165m years later.

In the same issue of the journal, another team of scientists, headed by Jin Meng at the American Museum of Natural History, describe another haramiyid, but come to very different conclusions. The creature, named Arboroharamiya, was of a similar age, to Megaconus, but had long toes and fingers, suggesting it lived in the trees. Meng's team argue that their creature was a fully-fledged mammal, and date the origin of all mammals to more than 200m years ago.

Richard Cifelli at the Oklahoma Museum of Natural History told the Guardian that more fossils were needed to clarify which team was right, and whether the animals were true mammals or more primitive forms.

But he added that the two fossils revealed the great diversity of lifestyles among the animals. Other early mammals evolved to burrow, swim and even glide from tree to tree.