The ancient site in Wigtownshire appears to have been a settlement of at least seven houses built in wetlands around a small loch, Historic Scotland said.
Experts believe the significant find could be "Scotland's Glastonbury", a reference to the lake village in Somerset, said to be a spot of international significance.
Culture Secretary Fiona Hyslop said the discovery at the Black Loch of Myrton was an "exciting and unexpected" find.
Historic Scotland said the dig began as a small-scale pilot excavation of what was initially thought to be a crannog in the now-infilled loch, which was under threat of destruction as a result of drainage work.
But during the excavation, archaeologists and local volunteers found evidence of multiple structures making up a small village.
The dig revealed a massive stone hearth complex at the centre of a roundhouse, Historic Scotland said.
The timber structure of the house has been preserved, with beams radiating out from the hearth forming the foundation, while the outer wall consists of a double-circuit of stakes.
The most surprising discovery was that the house was not built on top of an artificial foundation, but directly over the fen peat which had gradually filled in the loch, experts said.
Rather than being a single crannog, as first thought, it seems to be a settlement of around seven houses built in the wetlands around the body of water.
Such a site is so far unique in Scotland and there are said to be few other comparable sites elsewhere in Britain.
Similar lake villages, including Glastonbury and Meare, also in Somerset, have been found in England.
Ms Hyslop said: "The remains of an extensive Iron Age settlement at the Black Loch of Myrton are an exciting and unexpected find.
"I am pleased too that experts joined forces with local volunteers on this project and I look forward to discovering what more this important find can teach us about Iron Age Scotland."
The dig was part-financed with £15,000 from Historic Scotland and it was carried out by AOC Archaeology Group.
It was one of 55 archaeology projects to receive funding from Historic Scotland for this financial year.
The Culture Secretary added: "These range from small initiatives to large-scale undertakings, include both new and on-going schemes, and encompass everything from nautical archaeology to innovative digital methods of telling Scotland's story.
"In archaeological terms, Scotland is one of the most exciting places in Europe, so I'm pleased that such a broad range of interesting projects are receiving this financial support."