Massive stars end their lives in many different ways. Long Gamma-Ray Bursts are the most dramatic examples releasing their energy in ultrarelativistic jets that collide with the surrounding medium creating a synchrotron spectrum. Those event are also usually accompanied by a supernova. Here we present GRB 101225A, a very peculiar event at z=0.32 which we observed with a number of facitilies including OSIRIS/GTC. This exceptionally long GRB showed a bright X-ray transient with a thermal component and an unusual optical counterpart. During the first 10 days, the optical emission evolved as an expanding, cooling blackbody with a large initial radius, after which a faint supernova was observed. The absence of a normal GRB synchrotron afterglow implies that some dense material, likely ejected by the progenitor star, completely thermalized the high-energy emission. A possible progenitor is a helium star/neutron star binary which underwent a common envelope phase, expelling its hydrogen envelope prior to the explosion leaving only a small opening along the rotation axis. The final merging process created a GRB-like event where most of the high-energy emission gets thermalized in the collision with the previously expelled shell, until finally the emission from the SN itself takes over. Extremely deep GTC observations also allowed us to pinpoint the very faint host galaxy of this GRB with M_abs~-13.5mag. GRB 101225A might be a new, rare type of blackbody-dominated GRB which explodes in a dense environment created by the progenitor system itself.