The observatory consists of a semicircular platform 40 meters (130 feet) in diameter, surrounded by pillars that marked the movement of the sun through the seasons, the China Daily said.
Chinese rulers relied on astronomers for millennia to make calendars and to try to use the heavens to divine supernatural forces. Chinese astronomers made some of the earliest recorded observations of comets and other phenomena.
The latest discovery was at a site near the city of Linfen in Shanxi province where human habitation is believed to date back 4,300 years, the China Daily said.
It "was not only used for observing astronomical phenomena but also for sacrificial rites," He Nu, a research fellow with the Institute of Archaeology of the Chinese Academy of Social Sciences, was quoted as saying.
Seasons marked by the observatory differed by only one or two days from the traditional Chinese calendar, which is still used in rural China, the China Daily said.