A long-term study of nearly 3,000 adults aged between 57 and 85 found that those who could not identify at least four out of five common smells were more than twice as likely to develop the disease within five years.
Five years after the initial test, nearly every participant who was unable to name any of the smells had been diagnosed with dementia.
However, some experts have refuted the findings of the study stating that there could be other preseasons why people could lose their sense of smell.
"Loss of the sense of smell is a strong signal that something has gone wrong and significant damage has been done", said Jayant M Pinto, professor at the University of Chicago.
Dr. Pinto suggests that smell is the most "undervalued and underappreciated" of the human senses, "until its gone".
However he added: "Our test simply marks someone for closer attention".
According to a neurologist, Ronald Petersen, contemporary dementia research is more focused on determining the risk factors that make people more likely to develop the disease later on, hence an important part of diagnosing patients early comes down to spotting warning signs and testing them.
People who fail to recognize common odors could be at risk for dementia, researchers from the University of Chicago found.
Among the study's participants, 78 percent of those tested correctly identified four of five scents. Participants were told to smell the Sniffin' Sticks one at a time and identify the scent.
"These results show that the sense of smell is closely connected with brain function and health", said Pinto, an ear, nose and throat specialist.
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"As we age, it is common for people to experience changes to their senses and people shouldn't worry that this is an early sign of dementia". They explained that understanding link is necessary for the development of new treatments.
A paper describing the study was published in the Journal of the American Geriatrics Society.
Amazingly, researchers found that almost all of the patients who fell into this group had dementia five years later. The study appeared to show it was a better predictor of death than a diagnosis of heart failure, cancer or lung disease.
"Being unable to smell is closely associated with depression as people don't get as much pleasure in life", Professor Pinto said.
The olfactory nerve is the only cranial nerve directly exposed to the environment.
A simple smell test can predict dementia with a high degree of accuracy up to five years before symptoms begin, research has found.
Though humans lack the acute sense of some animals such as dogs, they can distinguish up to a trillion different odours. Alzheimer's is a brain disease that causes a slow decline in memory, thinking and reasoning skills. Losing the sense of smell is not only an inconvenience but a safety risk too.
The more they struggled, the worse their risk of dementia, the researchers said - after research where volunteers conducted "scratch and sniff" tests.
"While smell tests could help to flag up wider concerns, they'd need to be used alongside other, more specific diagnostic tests if they were to aid the early detection of dementia in future".