Archaeologists have discovered evidence of what they believe was a second Stonehenge located a little more than a mile away from the world-famous prehistoric monument.

The new find on the west bank of the river Avon has been called "Bluestonehenge", after the colour of the 25 Welsh stones of which it was once made up.

Excavations at the site have suggested there was once a stone circle 10 metres in diameter and surrounded by a henge – a ditch with an external bank, according to the project director, Professor Mike Parker Pearson, of the University of Sheffield.

The stones at the site were removed thousands of years ago but the sizes of the holes in which they stood indicate that this was a circle of bluestones, brought from the Preseli mountains of Wales, 150 miles away.

The standing stones marked the end of the avenue that leads from the river Avon to Stonehenge, a 1¾-mile long processional route constructed at the end of the Stone Age.

The outer henge around the stones was built about 2400BC but arrowheads found in the stone circle indicate the stones were put up as much as 500 years earlier.

Parker Pearson said his team was waiting for results of radiocarbon dating which could reveal whether stones currently in the inner circle of Stonehenge were originally located at the other riverside construction.

It should also show whether the newly discovered circle's stones were removed by Neolithic people and dragged along the route of the avenue to Stonehenge, to be incorporated within its major rebuilding about 2500BC. After that date Stonehenge consisted of about 80 Welsh stones and 83 local sarsen stones.

Pearson said: "The big, big question is when were our stones erected and when were they removed – and when we get the dating evidence we can answer both those questions."

He added: "We speculated in the past that there might have been something at the end of the avenue near the river. But we were completely unprepared to discover that there was an entire stone circle.

"I think we have found incontrovertible proof that the river was very important to the people who used Stonehenge. I believe that the river formed a conduit between the living and the dead and this is the point where you leave the realm of the living at the river and enter the one of the dead at Stonehenge."

The summer dig, which ended last month, also found evidence that the builders of the stone circle used deer antlers as pickaxes.

Excavations by the Stonehenge Riverside Project, which is a consortium of university teams, have uncovered a wealth of finds in recent years including the Neolithic village of Durrington Walls in 2005.

"Not many people know that Stonehenge was Britain's largest burial ground at that time. Maybe the bluestone circle is where people were cremated before their ashes were buried at Stonehenge itself," Parker Pearson added.

Dr Josh Pollard, project co-director from the University of Bristol, described the discovery as "incredible".

"The newly discovered circle and henge should be considered an integral part of Stonehenge rather than a separate monument and it offers tremendous insight into the history of its famous neighbour. Its landscape location demonstrates once again the importance of the river Avon in Neolithic funerary rites and ceremonies."

Another team member, Professor Julian Thomas, said the discovery indicated that this stretch of the river Avon was central to the religious lives of the people who built Stonehenge.

"Old theories about Stonehenge that do not explain the evident significance of the river will have to be rethought," he said.

There have been many theories about the use of Stonehenge, including that it was believed to have healing properties and was a giant astronomical observatory.

Stonehenge only acquired its famous silhouette after centuries of continuous rearrangement. In about 2500BC the gigantic sarsen stones were dragged across Salisbury plain and added to the smaller bluestones. Evidence from earlier excavations had already suggested that more bluestones were brought in to make a more complex pattern.

"The assumption was that they went back to Wales for more," Pearson said. "My hunch is that they just took them from our circle down the road." He believes the new circle marked the processional avenue from the river Avon to Stonehenge.