This isn't a nomination. The book is too long (almost 700 pages) and too strange for a book club, but
The Saragossa Manuscript by Jan Potocki fits the theme very well.
Quote:
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It's the story of a soldier, Alphonse van Worden, who is traveling to Madrid and along the way encounters bandits, cabbalists, scientists, ghosts, the Inquisition, gypsies, and a pair of alluring Muslim princesses who may or may not be his distant cousins. What is real, what is story, and what is dream become so confused that the result achieves an irreverent blend of fantasy and Gothic romanticism. The book’s heroes are not only at odds with the forces of law and order but also with the structures of narrative and plot. There is van Worden’s frame story as he tries to reach Madrid, then there are the stories he encounters on his journey, and then there are the stories within those stories until finally nothing is certain.
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There are stories within stories within stories. At one point we are five or more layers deep.
There is an excellent movie (Jerry Garcia's favorie), restored by Martin Scorsese, starring Zbigniew Cybulski, “the Polish James Dean”.
https://www.tor.com/2009/03/10/jan-p...-in-saragossa/