The portrait was found carefully hidden behind a painting by Dame Laura Knight, perfectly preserving its vivid colours and giving new insight into the tempestuous relationships among a gathering of artists studying in Cornwall in the early 20th century.
Experts believe it was painted by Laura's husband, Harold, in 1910 while all three were part of the artists' colony at Lamorna, near Newlyn, that also included Samuel John "Lamorna" Birch and Aleister Crowley.
It was one of the most important creative episodes in British art, but it was also beset with jealousy and tragedy.
Munnings went on to become a president of the Royal Academy and an outspoken critic of modernism, a flamboyant character whose talent and confidence placed many of the female painters in his thrall.
Laura Knight adored Munnings and frequently went off with him to paint on the Cornish cliffs, to the irritation of Harold.
Tom Rooth, Christie's specialist in British art who made the discovery, told the Telegraph the painting could have been hidden by Laura to avoid angering her husband or as a permanent demonstration of her feelings for Munnings.
"Harold Knight respected Munnings as an artist but there was no love lost between them," he said. "It is possible Harold's dislike of Munnings led him to dispose of it and Laura rescued it without his knowledge and hid it to avoid angering him. Perhaps she wanted to ensure the portrait survived but was forced to abandon it to its fate behind another painting."
The portrait, entitled Sir Alfred James Munnings Reading, was found during a routine examination of Carnaval, a 1915 ballet scene painted by Laura, during which Mr Rooth noticed the unusual appearance of not one but two edges of stretched canvas at the back.
"I could barely believe my eyes when I removed several of the nails," said Mr Rooth. "The freshness of the colours took my breath away. It is the most important discovery in my career, to date. Why was such a beautiful and important work hidden so deliberately?"
Despite her fondness for Munnings, there is no evidence Laura was having an affair.
"It was not a sexual relationship as far as anyone is aware," said author Jonathan Smith, whose novel about the artists and their friends, Summer In February, is being turned into a film. "She was in awe of him but it was really a deep devotion rather than an affair. There is something so exciting about why she went to the trouble of hiding the portrait. It is a really dazzling discovery about a massively important time for British art."
In the five years between the portrait and its concealment, Munnings wed one of his fellow artists, the beautiful Florence Carter-Wood. She attempted suicide on their wedding night and killed herself two years' later, causing shock and heartache within the Lamorna colony.
"Perhaps when Florence died the portrait was covered because it evoked too many memories of a lost chapter with the group," said Mr Rooth. "We will never know the real reason. It is a mystery, but that fact it was hidden encapsulates the intrigue, romance and complexity at the heart of the community of British Impressionist artists working in Lamorna at the beginning of the 20th century."
David Evans, whose father Gilbert Evans lived among the artists in Lamorna and was briefly in a love triangle with Munnings and Carter-Wood, said: "Laura Knight adored Munnings, but Harold just thought he was a noisy bore. They would have been part of the social life, which Munnings would have enjoyed because he was extroverted, but Harold was quieter and introverted."
Mr Rooth added: "Laura and Munnings were kindred spirits and their friendship may have caused Harold to foster a growing resentment despite their professional respect. It was an incredibly creative time at Lamorna, with all these talents in this small village spending their days painting in the Cornish sunlight and their evenings at wild parties."
Sir Alfred James Munnings Reading, which passed unknowingly through several hands while it was hidden behind Laura Knight's Carnaval, is expected to fetch up to £50,000 when it is sold by Christie's in December.
Munnings himself is best known as one of Britain's finest painters of horses and used his 1949 departing speech as President of the Royal Academy of Art to attack modernist painters including Picasso and Cezanne. His inebriated address was broadcast live on BBC Radio.
Laura Knight was made Dame Commander of the Order of the British Empire in 1929 and went on to be Britain's official war artist at the Nuremberg Trials in 1946.
The discovery of the painting coincides with the launch of a new arts festival in Lamorna celebrating the village which remains a popular spot for artists.
The Lamorna Arts Festival starts on September 30 and runs to October 6.