Most likely, 37mm or 40mm, either AA or infantry/tank cannon shell.
The British 2 pounder (40mm) cannon used in early WWII tanks fired a solid shot. Several different nations used a 37mm round as the standard tank and anti tank gun at the beginning of WWII (US, Germany, etc). Plus there are the different 37mm AA guns and aircraft cannon...
Each gun used its own shells (although there were "families" of guns using the same shells). These shells all look roughly similar, and the details of case dimensions are needed to correctly identify which one it is.
it is possible that the cloth is used to hold the projectile in the case from friction. It MAY be that the original "bullet" was replaced with an inert one. I have seen that done before, although usually done with a fired case to make a dummy round.
I have also run across live explosive shells that had their powder dumped and the warhead put back in the case to make a display round. Some don't know that doesn't make it safe.
If you just want it gone, call the cops, they'll send the bomb squad and take it away. They may even let you back into your house afterwards.....
Even if it is live, it hasn't gone off yet, so it likely won't. That does NOT mean it CAN"T go off. Carefully move it someplace where it would be safe if the worst happens, and if you can, get good measurements of all the dimensions (something better than the yardstick).
What I think you have is a display round someone made up, BUT it may not be, I can't tell for sure, so if you keep it, err on the side of caution until it is positively identified. If it does turn out to be a live explosive, it will have to be taken and disposed of by the authorities.
These kinds of things turn up often, cannon shells, artillery rounds, grenades and even aircraft bombs. Most of them are harmless. Some are not, even if someone at one time thought they were. Generally there is no problem if they are reported and dealt with by the authorities. But, if you know that it is a live explosive, and you keep it, there are legal problems involved in that.
be safe, and be legal.