We report the existence of a phase transition at high temperature in the 3D Kitaev candidate material, $beta$-Li$_2$IrO$_3$. We show that the transition is bulk, intrinsic and orders a tiny magnetic moment with a spatially anisotropic saturation moment. We show that even though this transition is global, it does not freeze the local Ir moments, which order at much lower temperatures into an incommensurate state. Rather, the ordered moment has an orbital origin that is coupled to spin correlations, likely of a Kitaev origin. The separate ordering of spin-correlated orbital moments and of local Ir moments reveals a novel way in which magnetic frustration in Kitaev systems can lead to coexisting magnetic states.
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