Summary: An analogue of the KP hierarchy, the SDiff(2) KP hierarchy, related to the group of area-preserving diffeomorphisms on a cylinder is proposed. An improved Lax formalism of the KP hierarchy is shown to give a prototype of this new hierarchy. Two important potentials, \(S\) and \(\tau\), are introduced. The latter is a counterpart of the tau function of the ordinary KP hierarchy. A Riemann-Hilbert problem relative to the group of area-diffeomorphisms gives a twistor theoretical description (nonlinear graviton construction) of general solutions. A special family of solutions related to topological minimal models are identified in the framework of the Riemann-Hilbert problem. Further, infinitesimal symmetries of the hierarchy are constructed. At the level of the tau function, these symmetries obey anomalous commutation relations, hence leads to a central extension of the algebra of infinitesimal area-preserving diffeomorphisms (or of the associated Poisson algebra).