Researchers from Queen Mary University of London said that the test, which picks up circulating cancer cells in a patient's blood, could be available on Britain's National Health Service (NHS) within the next three to five years.
The current prostate specific antigen (PSA) test is not highly accurate, with patients needing a follow-up biopsy to see whether they truly have cancer.
For those who do have the disease, doctors then struggle to work out which cases are aggressive and need treatment and which cases can be left alone as they are unlikely to prove fatal.
This uncertainty can lead to some men receiving unnecessary treatment for a disease that will never kill them.
The new test (called Parsortix) is much more accurate and can be used in combination with the PSA test.
Using an advancing method of cancer detection, it picks up circulating tumour cells (CTCs) that have left the original tumour and entered the bloodstream.
The study, published in the Journal of Urology, looked at the use of the CTC test in 98 pre-biopsy patients and 155 newly diagnosed prostate cancer patients enrolled at St Bartholomew's Hospital in London.
Researchers found that the presence of CTCs in pre-biopsy blood samples correctly determined which patients had cancer (as confirmed by biopsy).
When the CTC tests were used in combination with the current PSA test, it was able to predict the presence of aggressive prostate cancer in subsequent biopsies with over 90 per cent accuracy.
The number and type of CTCs present in the blood also helped indicate how aggressive the cancer was.
Lead researcher Professor Yong-Jie Lu, from Queen Mary University of London, said the current prostate cancer test often lead to unnecessary invasive biopsies "and over-diagnosis and over-treatment of many men, causing significant harm to patients and a waste of valuable healthcare resources."
"There is clearly a need for better selection of patients to undergo the biopsy procedure. Testing for circulating tumour cells is efficient, non-invasive and potentially accurate, and we've now demonstrated its potential to improve the current standard of care," he said.
"By combining the new CTC analysis with the current PSA test, we were able to detect prostate cancer with the highest level of accuracy ever seen in any biomarker test, which could spare many patients unnecessary biopsies.
"This could lead to a paradigm shift in the way we diagnose prostate cancer."
In June, experts unveiled a new urine test for prostate cancer which could also prevent unnecessary biopsies.
The test is designed for men who are suspected of having prostate cancer, as well as those already diagnosed with low risk disease who are on a "watch and wait" approach known as active surveillance.
In suspected prostate cancer cases, the test can work out which men have aggressive or intermediate levels of disease, and can rule out those without cancer.
This cuts down the need for a barrage of tests, including blood tests, a physical examination known as a digital rectal examination (DRE), an MRI scan or a biopsy.
