In some applications, the accuracy of the numerical solution of an ell
iptic problem needs to be increased only in certain parts of the domai
n. In this paper, local refinement is introduced for an overlapping ad
ditive Schwarz algorithm for the p-version finite element method. Both
uniform and variable degree refinements are considered. The resulting
algorithm is highly parallel and scalable. In two and three dimension
s, we prove an optimal bound for the condition number of the iteration
operator under certain hypotheses on the refinement region. This boun
d is independent of the degree p, the number of subdomains N(r) and th
e mesh size H. In the general two dimensional case, we prove an almost
optimal bound with polylogarithmic growth in p.