Researchers found that the 3-centimetre-long creature, unearthed from the famous Chengjiang formation near Kunming in southwest China, had massive claws and a spider-like brain.
The fossil belongs to an extinct group of marine arthropods known as megacheirans.
"We now know that the megacheirans had central nervous systems very similar to today's horseshoe crabs and scorpions," said the senior author of the study, Nicholas Strausfeld, a Regents' Professor in the University of Arizona's department of neuroscience.
The newly discovered fossil has been classified as a representative of the extinct genus Alalcomenaeus.
Animals in this group had an elongated, segmented body equipped with about a dozen pairs of body appendages enabling the animal to swim or crawl or both.
All featured a pair of long, scissor-like appendages attached to the head, most likely for grasping or sensory purposes, which gave them their collective name, megacheirans.
"However, this wasn't rock solid because others lined up the great appendage either a segment in front of spider fangs or one segment behind them," said Edgecombe, from London Natural History Museum.
"We have now managed to add direct evidence from which segment the brain sends nerves into the great appendage. It's the second one, the same as in the fangs, or chelicerae.
Comparing the outline of the fossil nervous system to nervous systems of horseshoe crabs and scorpions left no doubt that 520-million year-old Alalcomenaeus was a member of the chelicerates, researchers said.
Specifically, the fossil shows the typical hallmarks of the brains found in scorpions and spiders: Three clusters of nerve cells known as ganglia fused together as a brain also fused with some of the animal's body ganglia.
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