In RSSI-based RFID(Radio Frequency IDentification) indoor localization system, the signal path loss model of each sub-region is different from others in the whole localization area due to the influence of the multi-path phenomenon and other environmental factors. Therefore, this paper divides the localization area into many sub-regions and constructs separately the signal path loss model of each sub-region. Then an improved LANDMARC method is proposed. Firstly, the deployment principle of RFID readers and tags is presented for constructing localization sub-region. Secondly, the virtual reference tags are introduced to create a virtual signal strength space with RFID readers and real reference tags in every sub-region. Lastly, k nearest neighbor (KNN) algorithm is used to locate the target object and an error compensating algorithm is proposed for correcting localization result. The results in real application show that the new method enhances the positioning accuracy to 18.2% and reduces the time cost to 30% of the original LANDMARC method without additional tags and readers.