The fossilised bones of an ancient beast dug from a rocky bluff in Arctic Alaska are the remains of a new species of pygmy tyrannosaur.

The animal stalked the northern tip of Laramidia, a slender island continent that formed when North America was divided by a stretch of water called the western interior seaway in the Late Cretaceous. Researchers said that fragments of the tyrannosaur's skull and jaws suggested that the creature inhabited the ancient Arctic island around 70m years ago.

Though far smaller than other tyrannosaurs, the adult was still nearly 2 metres tall at the hips, and measured around 7 metres from snout to tail. An adult T. rex could grow to twice the size.

The discovery, reported in the journal PLOS ONE, will help palaeontologists build a picture of prehistoric life in the polar region, which has proved to be a rich trove of dinosaur fossils.

Scientists found remnants of the dinosaur in rocks they had cleared by helicopter from the top of a steep bank beside the huge Colville river, nearly 400 miles northwest of Fairbanks. They had shifted the rocks in 2006 to make way for a major excavation that uncovered the remains of a new species of horned dinosaur, called Pachyrhinosaurus perotorum.

Nanuqsaurus hoglundi was nearly 2 metres tall at the hips and 7 metres from snout to tail, about half the size of T rex. Illustration: Karen Carr

Tony Fiorillo, curator of Earth sciences, and Ron Tykoski, fossil preparator, at the Perot Museum of Nature and Science in Dallas camped across the river from the excavation site. Each morning, they took an inflatable boat across the river, which is half a mile wide in places, then climbed the 250 feet to the top of the bluff to go fossil hunting.

The site is among the most remote in the world. To the north is nothing but rolling plain and tundra. To the south, the wide river, and far off on the horizon, the mountains of the Brooks Range. The highest trees you could see might reach your knee.

"We brought back as many of the rocks as the helicopter would carry, but we laid them aside while we got on with the quarry," said Fiorillo. "When we finally got around to these pieces, we discovered that we had a tyrannosaur on our hands."

Theropod size comparisons, showing the newly discovered Nanuqsaurus hoglundi (A), Tyrannosaurus rex (B and C), Daspletosaurus torosus (D), Albertosaurus sarcophagus (E), Troodon formosus (F), and Troodon sp. (G). Scale bar equals 1 metre Photograph: PLOS

The bone fragments were unsual because they were small but almost certainly from an adult. Tykoski prepared pieces of skull, lower jaw and upper jawbone. The age of the beast was given away by distinctive sockets running along the edge of the upper jaw that are only seen in adults of other tyrannosaurs.

"It wasn't until the past few years, with more work being done on growth rates, that we were able to look at these pieces in finer detail and realise that they weren't a youngster of a known species, but a mature individual of something new," Tykoski told the Guardian. "It is absolutely a pygmy tyrannosaur."

The scientists have named the creature Nanuqsaurus hoglundi. "Nanuq" comes from the local Iñupiat word for "polar bear", and "hoglundi" honours Forrest Hoglund, a Dallas entrepeneur and philanthropist who helped raise funds to build the museum. "I've been called an old dinosaur a number of times in my life, but I guess now the name fits," said Hoglund, who is nearing his 81st birthday.

One surprise remained for the researchers to discover when they looked back at some of the bones of the plant-eating horned dinosaur they had dug up at the site in 2006. "Some of the bones had tooth marks on them and deep grooves in them. We feel pretty confident that this pygmy tyrannosaur was eating the herbivorous dinosaurs around at the time," said Fiorillo.

It is unclear why the tyrannosaur was so small. Fiorillo and Tykoski speculate that the harsh Arctic seasons, with their long periods of light and dark, made resources scarce, which may have benefited smaller bodies.

"We'd certainly like to know more about this animal," said Fiorillo. "And whatever else might be out there."

Roger Benson, a vertebrate palaeontologist at Oxford University, said the small size was intriguing. Most modern birds and animals are larger at high latitudes, because larger bodies have proportionally smaller surface areas, and so lose less heat to their surroundings.

"They propose that it's small because it lived in an Arctic environment. It wasn't as cold as it is today, but it was still dark for half the year, so they suggest the small size was due to resources being limited," Benson said.

"But their work is based on very fragmentary fossil material. It's certainly a small individual, and they point to some features that suggest it's an adult, but there's still a possibility that it's a young one. If they had looked at cross sections of the bone, that would give them growth lines, and they tell you fairly reliably if something is mature or not."