BBC News reports that the cottage was discovered near Lower Black Moss reservoir in the village of Barley, in the shadow of Pendle Hill.
Archaeologists believe that cottage could have belonged to one of the Pendle witches as the building contained a sealed room, with a mummified cat bricked into the wall.
It is believed the cat was buried alive to protect the cottage's inhabitants from evil spirits.
Simon Entwistle, an expert on the Pendle witches, said: "In terms of significance, it's like discovering Tutankhamen's tomb.
The engineering project has been put on hold while archaeologists investigate the site
"We are just a few months away from the 400th anniversary of the Pendle witch trials, and here we have an incredibly rare find, right in the heart of witching country. This could well be the famous Malkin Tower - which has been a source of speculation and rumour for centuries.
"Cats feature prominently in folklore about witches. Whoever consigned this cat to such a horrible fate was clearly seeking protection from evil spirits."