It lies by the river Nile, close to the Temple of Seti the First in Abydos.
Experts say the size of the 15 newly discovered graves indicates the high social standing of those buried.
It is believed the city was home to important officials and tomb builders and would have flourished during early-era ancient Egyptian times.
Experts say the find could be a boost for Egypt's struggling tourism industry which has been in the doldrums since President Hosni Mubarak was overthrown in 2011.
Archaeologists have made a range of finds in the newly-discovered city including buildings, shards of pottery and tools made of metal and stone.
But the BBC's Middle East analyst Alan Johnston says that most significant is the discovery of the huge graves.
It is believed that this location was home to important officials and tomb builders who may have been engaged in the construction of royal graves in the nearby sacred city of Abydos - a place of many temples, and a capital in an early period of ancient Egyptian history.
The rich discovery is exciting news, our correspondent says, and not just for modern Egypt's archaeologists.
It comes at a time when the country is trying re-energise its hugely important tourism industry, which has suffered badly as a result of protracted political turmoil.
Officials quoted in the Egypt Independent said the discovery was made by an archaeological mission that belongs to the country's Antiquities Ministry, and not a foreign group.