Artefacts from Egypt, India and China have been found in the city in the Harlaa region.
The archaeologists also uncovered a 12th Century mosque which is similar to those found in Tanzania and Somaliland.
Archaeologists says this proves historic connections between different Islamic communities in Africa.
“This discovery revolutionises our understanding of trade in an archaeologically neglected part of Ethiopia. What we have found shows this area was the centre of trade in that region,” lead archaeologist Professor Timothy Insoll from the University of Exeter said.
Story: BBC News | Photo: Tim Insoll, University of Exeter