Designing Kitchens and Bathrooms - What's that cloth on the walls?

I have moved into an older house and have plans for some projects in the bathroom including adding a ventilation fan and repainting/repairing the walls. I have noticed that there is a cloth layer on the ceiling and walls that seems to be beneath all the layers of paint and right against the plaster. What is this? I haven't seen this before. The house was probably built in the 1880's or 90's. I don't know if the bathroom walls are original to that time or not. This cloth layer seems to be creating tons of problems for the paint - many cracks and peeling through all the layers. Should this be ripped off the walls and then replaster? Is it best to leave it alone or leave it to the professionals?