Most massively multiplayer game servers employ static partitioning of their game world into distinct mini-worlds that are hosted on separate servers. This limits cross-server interactions between players, and exposes the division of the world to players. We have designed and implemented an architecture in which the partitioning of game regions across servers is transparent to players and interactions are not limited to objects in a single region or server. This allows a finer grain partitioning, which combined with a dynamic load management algorithm enables us to better handle transient crowding by adaptively dispersing or aggregating regions from servers in response to quality of service violations.Our load balancing algorithm is aware of the spatial locality in the virtual game world. Based on localized information, the algorithm balances the load and reduces the cross server communication, while avoiding frequent reassignment of regions. Our results show that locality aware load balancing reduces the average user response time by up to a factor of 6 compared to a global algorithm that does not consider spatial locality and by up to a factor of 8 compared to static partitioning.