CONTINENT By Jim Crace Harper & Row. 138 pp. $14.95

The misguided notion that there was once another continent began with the ancient Greeks and their sunken Atlantis and has provided pulp writers and crackpots with inspiration ever since. The English writer Jim Crace has now taken this chestnut and gone off in an unusual direction. In his "Continent," everything is identical with our reality, except for one element: There's an additional continent, and it's still afloat.

The book, which wavers between being a short story collection and a fragmentary novel, has a similar buoyancy. It begins with an epigram: "There and beyond is a seventh continent -- seven peoples, seven masters, seven seas. And its business is trade and superstition." The source of this admonition is Pycletius, who would seem to be a Greek historian -- except that the "Oxford History of the Classical World" and other authoritative reference books make no mention of him.

Crace has other sorts of fun up his sleeve. He makes sly references to Mu, the lost continent popularized by the retired British army colonel James Churchward in a series of nutty books. The effect of these jokes is a witty underlining of the premise. You're encouraged to take it seriously precisely because the author is confident enough not to.

"Continent" arrives with a garland of praise, and not from the usual book-chat folks, either. John Fowles calls it "remarkable," Edward Hoagland tosses around phrases like "a fabulous piece of virtuosity," and John Hawkes describes Crace as "gifted almost beyond belief." The book also won two English first-novel awards, in addition to The Guardian prize for fiction.

For the best pieces, these accolades are well deserved. In "Sins and Virtues," a retired Siddilic calligrapher finds his work eagerly sought by foreigners:

"They call my craft art these days and pay great sums for it. Last month a collector from Chicago offered Duni the ironmonger three thousand dollars for his ancient shop front with my flaking age-old letters ...

"Three thousand dollars! Duni had paid me for the work with cooking pots. 'Duni Empire,' I had written on his instruction, 'Pots, Tools, Seeds, Bicycles at Favorable Prices. Toilet Supplies.' I pray for the people of Chicago."

The calligrapher's hands have grown unsteady, but the government forces him back into business anyway: The regime could profit from a European exhibit of Siddilic art. How the old man outwits his enemies has the force and eloquence of a folktale.

An even better story is "In Heat." A woman tries to piece together the real story of an expedition undertaken long ago by her parents. The father, a professor, has unusual theories of sexuality: It is desire "which separates us from the animals, our capacity to enjoy our bodies as the whim takes us, ever receptive to pleasure," he decides. "Any place, any time. Now, for instance?"

This last query is directed at the narrator's mother, a long-suffering woman. Between acts, the couple discovers a forest village where "to hear {the language} spoken in jostling conversation was to hear a flock of doves take wing." A much greater oddity is that all the women of child-bearing age are pregnant -- and by the same number of months. The father concludes this is "humankind in its sexual infancy," and here is a wonderful opportunity for him to become a scientific legend. But to prove his theories, he needs a corpse.

"In Heat" borrows elements from the adventure tale, the medical thriller and the gothic to produce a wonderful, unclassifiable story. Tightly written and trenchantly amusing, it never quite meets up with our world at all.

When the author sticks too closely to the theme of interplay between this mysterious, unnamed continent and our known reality, the results are less successful. "Cross-Country" details a race between a jogger from Canada and a native horseman, and never attains the mythic quality it clearly strives for. A similar fate befalls "The Prospect From the Silver Hill," a vignette about a rural community and a mining agent.

The book as a whole is handicapped by a continuing flaw: In each story, Crace must create his territory afresh. The jungle of "In Heat" bears no kinship to the desert in "Sins and Virtues," and neither connects to the low hills of "Cross-Country." Unlike Austin Tappan Wright's classic novel "Islandia" -- still the most extensive and best treatment of the seventh continent theme -- Crace's landmass is only a stage set.

Possibly, that's the point: These landscapes are intended to be reflections or doppelga ngers of our own world. Thus, "Sins and Virtues" is an ironic commentary on the desire of some Third World countries to disguise their social repression with public relations gimmicks. The book's off-putting jacket supports such a view, and talks about "the underlands of the human psyche" and "the collective unconscious of the human race."

That's a lot of conceit for a 138-page book to support, however, and such theories are best left for thesis writers. For readers less concerned with the whereabouts of the collective unconscious, "Continent" is a quirky update on an old idea, and a striking relief from another first novel about yuppie angst. The reviewer is a writer for the Style section of The Washington Post.