Unknown Connected Device

Keep the iPhone updated to the latest iOS always and never Jailbreak. That's it.

iOS / iPadOS devices cannot be hacked or infected with Virus / Malware / Spyware if it is updated to the latest iOS/iPadOS unless you have intentionally downloaded spurious software or unauthorized apps directly from the internet and installed on your device or/and have Jail Broken. 

It (Hacking) also depends on how careful are you in sharing sensitive and valuable information pertaining to your iPhone such as Passcode, Password, etc with your friends and family members.

Be careful when sharing the device's sensitive and valuable information with friends and family members.

Thumb Rules:

1. Enable  Guided Access before handing over an iPhone to kids
2. Don't share Apple IDs
3. Don't Jailbreak
4. Don't share sensitive information pertaining to your device and payment methods
5. Beware of Phishing

jameshoty Said:

"Unknown Connected Device"

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Contact Apple Support:

If you cannot remove it, Contact Apple Support, asking them how to do so. This seems to be a Security & Privacy issue --one that needs to be fixed ASAP..

• Contact Us - Choose Locations
• Proceed from there as necessary

Note: Phone calls are taking a bit to go through at the moment, due to lots of calls. With the Coronavirus Pandemic, many are at home at the moment, with much time on their hands to contact Apple. So, just stay on the line, and you will get through :)

jameshoty Said:

"[...]But the fact that an unknown device can get connected (by itself) to my phone when I am in the public place is eerie.""

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Three Things:

A. Disabling Bluetoth:

You're right --it is a bit eerie. I couldn't agree less. So, disabling Bluetooth for seems the way to go, for now.

B. Start with a Restart:

Restart your iPhone, and see if it then is fixed.

C. Verify your Devices:

See if it already associated to your account. Go here: Check your Apple ID Device List to See where you're Signed in - Apple Support

Check if this remains connected even when you walk away to another room with concrete walls or say 100 feet away.

Try the following that may help remove the mysterious device

• Settings > General > Transfer & Reset iPhone > Reset > Reset Network Settings.
• You may have some third-party apps installed especially for Audio, please delete that.
• You may have some profiles installed by some nearby Bluetooth accessories.

Make sure ( what I’d personally do ) remove all those devices under your Bluetooth. I’m sure you can turn it on and off as needed. I usually have mine turned off. It will say my watch and if it’s connected or not. Even when I disconnect it, it only takes a moment to pair back up. So I’d keep it off, and remove any unknown device. All that aren’t using it for that matter.

good luck