A buried pipe replacement system incorporating an elongated tapered grinding head having a helical cutter element disposed about the periphery and extending substantially along the length thereof. The grinding head is also provided with fluid ejection ports, enabling drilling fluid/lubricant material to be ejected therefrom as the drilling head is rotated and moved linearly against the buried existing pipe. The pipe grinding operation reduces the buried existing pipe to a pulverant form wherein the particulate resulting from grinding away the existing pipe forms a bedding composition lining at least the side and bottom portions of the resulting bore and thereby providing for optimum support of a replacement pipe which is towed into position within the bore simultaneously with the pipe grinding operation. A swivel connection allows rotation of the grinding head without inducing rotation to the replacement pipe following the grinding head. The grinding head is driven rotatably by the gear train of a power unit which imparts rotation to drill pipe extending from the power unit to the grinding head. Linear movement of the grinding head is induced by one or more hydraulic cylinders that impart linear movement to the power unit relative to a guide and support track on which the power unit is movably located.