This Paper presents a heuristic algorithm for machine-part group formation considering part production information (Production volume, roution sequence, unit operation time, facility size) in cellular manufacturing logistics system. In general, factory space is restricted within limited size when cells are located. A twofold heuristic algorithm is developed for considering factory space restrictions of located cells. The first phase is a aggregation procedure to minimize inter cell movement for satisfactoring space restriction. The second phase is a rearrangement procedure to maximize line balancing efficiency between machines within the cell and non assigned machine during first phase. Numerical example is presented to verify the efficiency of proposed algorithm.