Scottish Water was carrying out the works at Philiphaugh on the outskirts of Selkirk whilst laying new pipes between Howden and Yarrowford.
A Scottish Borders Council's archaeologist said:
"It is an exciting discovery. It is not every day that medieval villages are found - most of them are known, this one was completely unknown."
More top news
Vigils have been held in the region to mark the 100th anniversary of the battle of the Somme.
Vigils will take place across the region tonight to remember those who fought in the Battle of the Somme 100 years ago.
In our Political Editor's latest blog; the Holyrood recess will be used to look at options for the future with the UK outside the EU.