This paper presents a new mixed-integer non-linear programming model for designing the group layout (GL) of unequal-area facilities in a cellular manufacturing system (CMS) under a dynamic environment. There are some features that make the presented model different from the previous studies. These include: (1) manufacturing cells with variable numbers and shapes, (2) machine depot keeping idle machines, (3) machines of unequal-areas, (4) manufacturing cells with rectangle regular shapes established on the continuous shop floor and (5) integration of cell formation and GL as interrelated decisions involved in the design of a CMS in a dynamic environment. The objective function is to minimises the total costs of intra-and inter-cell material handling, machine overhead, machine relocation, machine processing, purchasing machines and forming cells. Since the problem is NP-hard, an efficient simulated annealing (SA) algorithm is developed to solve the presented model. The performance of this model is illustrated by two numerical examples. It is then tested using several test problems with different sizes and settings to verify the computational efficiency of the developed algorithm in comparison to the classical genetic algorithm (GA). The obtained results show that the quality of the solutions obtained by SA is better than GA.