Propagation of internal waves over a circular cylinder under the conditions of a continuous stratification characterized by the presence of a high-gradient density layer (the pycnocline) of finite thickness is studied. The dependences of the coefficent of wave propagation on the wavelength of the first-mode incident wave for various thicknesses of the pycnocline are obtained. In the diffraction of internal waves, substantial nonlinear effects are shown to occur, which result in the appearance of waves of double oscillation frequency compared to the frequency of the incident waves. The generation coefficient for these waves is found.