One of the main critique on cellular manufacturing and its algorithms is their inability to handle dynamics events, especially dynamic changes in part spectrum. Unfortunately, there are not many efforts in the literature to overcome this problem. Agent oriented computing provides a marvellous opportunity to handle dynamic problems and to provide effective solutions, if carefully and intelligently implemented. In this paper, we have proposed a novel agent-based clustering algorithm for part family formation in cellular manufacturing by considering dynamic demand changes. However, it is not easy to directly compare the performance of the proposed algorithm with the literature results as there is no benchmark for dynamic cell formation problems. We attempt to compare the performance of the present algorithm on static test problems by dynamically introducing parts in these data-sets to our algorithm. Many results have been presented on these static data-sets by utilising several heuristics, meta-heuristics and optimisation-based algorithms. Although the proposed algorithm is not an optimisation-based algorithm and its operation is directed to handle dynamic changes in the problem domain through negotiation, we have shown that it has ability to provide very good results which are comparable to the best known solutions.