In the latest edition of the International Cricket Council (ICC) Test rankings the Proteas, who have won six out of their last seven series, leapfrogged England into second place.
Vaughan, speaking at Lord's, a day before the first of a four-match series is due to start at the 'home of cricket' said South Africa would represent a huge step up in class from New Zealand, who England beat 2-0 last month.
"South Africa are obviously a different proposition in terms of their bowling attack. They are a lot more pacey and come at you from different angles," Vaughan explained.
"They have had a wonderful year. They are a settled team with a good mix of experience and youth," added Vaughan, who singled out Dale Steyn, the in-form Proteas quick.
"Dale Steyn is No 2 in the world and will be a big threat. In terms of their batting, that's going to challenge all our bowlers. But we swing the ball and it should swing here over the next few days."
England, late injuries permitting, are now set to field an unchanged side for a world Test record sixth successive occasion.
"Everyone's fit, we'll be playing the same team as Trent Bridge (where England won by an innings and nine runs), " Vaughan confirmed. "Hopefully it will be a similar performance."
Since the Proteas re-admission into world cricket following their apartheid-enforced exile, Test series between England and South Africa have been tough affairs and Vaughan expects this one to be no different.
"They've always been hard fought contests. They are up there with the Ashes and over the next five weeks we will find out whether we have developed into a good Test team," said Vaughan whose side are at home to arch-rivals Australia next year.
However, Vaughan said the worth of England's pace attack should not be under-estimated. "This is a series we can win. We have a set of bowlers who are skilful. Ryan Sidebottom's caused every batsman he's bowled against problems and Jimmy Anderson got better and better against New Zealand while Stuart Broad bowled beyond his years."
Vaughan's longstanding right knee problem flared up during a county match for Yorkshire against Durham but the top-order batsman insisted his own fitness wasn't an issue. "It's fine. It was just a little bit of aggravation."
England all-rounder Andrew Flintoff is on the brink of a return after more than a year out of Test cricket because of ankle and side injuries.
South Africa coach Mickey Arthur reckons that Flintoff's anticipate comeback in next week's second Test at Headingley could put pressure on the likes of struggling batsmen Ian Bell and Paul Collingwood in particular.
Flintoff, who took three wickets and struck a quick fifty during Lancashire's Twenty20 Cup defeat in London on Tuesday against Middlesex, joined up with England for a practice session at Lord's on Wednesday.
"In international sport there is always pressure on you. Andrew Flintoff is an exceptional circumstance and we want him back in the team," said Vaughan.
The star all-rounder is due to play for Lancashire in a Championship match and Vaughan added: "As soon as he bowls three overs it's 'get him back in the England team' but this way he will be getting more overs under his belt and a little bit more time in the middle.
"Hopefully he'll have a good game, we'll have a good game and the selectors will have a tough decision. It's a long summer and to rush him back would have been the wrong thing to do."
Thursday's match will be the first time that England's Kevin Pietersen, who controversially quit South Africa in protest at a racial quota selection policy, has played a Test against the land of his birth.
But Vaughan was confident his star batsman would relish the occasion.
"Kevin is a wonderful player who likes the spotlight and has done well against pace bowling."