Tiny fossils found in mudrock in the barren wilderness of the Canadian Arctic are the remains of the oldest known fungus on Earth, scientists say.

The minuscule organisms were discovered in shallow water shale, a kind of fine-grained sedimentary rock, in a region south of Victoria island on the edge of the Arctic Ocean.

Tests on the shale, which accumulated over millions of years in a river or lake, revealed that it formed between 900m and 1bn years ago in what is now the Northwest Territories.

The age of the rock makes the fungus half a billion years older than the previous record holder, a 450m-year-old fungus that was unearthed in Wisconsin.

Writing in the journal Nature, scientists describe how a battery of chemical and structural analyses identified the ancient organism as Ourasphaira giraldae. Spores of the fungus are less than a tenth of a millimetre long and connect to one another by slender, branching filaments.

With the fossils under the microscope, scientists could clearly make out key features of the fungus including its spherical spores, the branching filaments that connect the spores, and their twin-layered cell walls.

The organisms are so well preserved that they still carry traces of chitin, an organic compound used to make fungal cell walls. The fungus was effectively trapped in solidified mud which prevented oxygen from seeping in and decomposing the fungi. “The preservation is so good that we still have the organic compounds,” said Corentin Loron, first author on the study at the University of Liège in Belgium.

The Grassy Bay Formation in the Brock Inlier in Canada’s Northwest Territories. Photograph: Robert H Rainbird, Geological Survey of Canada

Fungi play a crucial role in ecosystems, decomposing organic matter and returning nutrients to the ground to help plants grow. The existence of fungi a billion years ago suggests that the organisms laid the groundwork for the first plants to colonise the land about 470m years ago.

The extreme age of the newly-found fungus may have implications for the history of other life on Earth. Before they went their separate ways, fungi and animals sat on the same branch of the evolutionary tree. If fungi had already evolved a billion years ago, primitive animals might have too.

“If this is really fungi, then there should be animals around too,” said Loron. “We’re not talking about anything big like dinosaurs. It would be something very simple. Perhaps a sponge.”

While individual fungal spores are tiny, the organisms can grow to enormous sizes by branching off and connecting together. One species of honey fungus in the Blue Mountains in Oregon is thought to be the world’s largest living organism at 2.4 miles wide.