The discovery confirms the western part of the islands as an important new area for oil exploration and could provide Britain with a new source of oil revenues.
BP's initial estimates suggest that the field contains recoverable reserves of between 250 and 500 million barrels, equivalent to a medium-sized North Sea field.
However, the final estimates could be much larger, making it one of the most significant finds in British waters for a decade.
John Browne, chief executive of BP Exploration, said: 'This is a promising discovery which will require further appraisal to define the reserves more precisely. The discovery has the potential to open up a significant new play in the west of Shetland.'
The discovery was made in block 204/24a at a depth of 48 metres. BP has an 80 per cent stake, with the balance owned by Shell.
As a result of the find, the Government has awarded the two companies five more blocks to explore in the area. The companies will hold equal shares in the new blocks.