Fluid–structure-interaction (FSI) phenomena with multi-phase flow dynamics and structural damage commonly exist in engineering practice, which however bring great challenges to nowadays numerical FSI algorithms. A novel localized subdomain smoothing MMALE particle method (ls-ALEPM) is proposed in this paper for efficient and accurate simulations of large scale FSI problems. The MMALE method and the MPM are strongly coupled by immersing the MPM particles into the MMALE grid. In order to avoid the spurious strain induced by the mixed FSI velocity field, a decoupled stress updating scheme is proposed to update the stress of solid particles by introducing a virtual velocity field in the vicinity of FSI interface. And specifically, the highly accurate polyhedron intersection based method is employed for its remapping phase, which however is time-consuming. Thus, the localized subdomain smoothing method (LSSM) is put forward to accelerate the remapping phase which only involves the distorted regions of computational grid. The LSSM is composed of a distorted subdomain determination step and a combinated mesh smoothing step. Each iteration of the combinated mesh smoothing step consists of the modified GETMe and the weighted average method, and the transfinite interpolation method is adopted if the quality criteria is still not satisfied after prescribed maximum number of iterations. The validity and efficiency of ls-ALEPM is verified by several benchmark numerical examples and practical engineering simulations.