This paper presents a new heuristic algorithm for the machine cell(MC) formation problem. MC formation problem is represented as an unbalanced k-way network partition and the proposed algorithm uses four stage-approach to solve the problem. Four stages are natural sub-network formation, determination of intial vertexes for each sub-network, determination of initial partition, and improvement of initial partition. Results of experiments show that the suggested algorithm provides near optimal solutions within very short computational time.