diff --git a/src/labels/process.rs b/src/labels/process.rs
index a61d5ce..7d382a5 100644
--- a/src/labels/process.rs
+++ b/src/labels/process.rs
@@ -1,3 +1,5 @@
+use compact_str::CompactString;
+
 use crate::world::Board;
 
 use super::{
@@ -14,6 +16,8 @@ pub fn process_labels(board: &mut Board) {
         .collect();
     let mut registry = Registry::new();
 
+    resolve_local_labels(&mut stats);
+
     // Replace each label with its sanitized equivalent
     for stat in stats.iter_mut() {
         for chunk in stat.iter_mut() {
@@ -51,6 +55,41 @@ pub fn process_labels(board: &mut Board) {
     }
 }
 
+/// Resolve ".local" labels to "name.local" form.
+fn resolve_local_labels(stats: &mut [ParsedStat]) {
+    for stat in stats.iter_mut() {
+        let mut section = CompactString::const_new("");
+        for chunk in stat.iter_mut() {
+            match chunk {
+                Chunk::Label {
+                    is_ref,
+                    is_anon: false,
+                    name: label,
+                } => {
+                    // Handle cases where either one of (section name, label) is missing.
+                    // If both are present ("name.local") then the label is already fully resolved
+                    // and there is nothing to do.
+                    if label.name.is_empty() {
+                        // Expand :.local to :name.local
+                        assert!(label.local.is_some());
+                        label.name = section.clone()
+                    } else if label.local.is_none() {
+                        // Interpret label :name as start of new section.
+                        // Only label definitions do this; label references have no effect.
+                        if !*is_ref {
+                            section = label.name.clone();
+                        }
+                    }
+                }
+                _ => {}
+            }
+        }
+    }
+}
+
+/// Simultaneously:
+/// 1. Assign names to anonymous labels.
+/// 2. Resolve anonymous backward references to their label names.
 fn anonymous_forward_pass(stats: &mut [ParsedStat], registry: &mut Registry) {
     let mut label_names = vec![];
     for stat in stats.iter_mut() {
@@ -84,6 +123,7 @@ fn anonymous_forward_pass(stats: &mut [ParsedStat], registry: &mut Registry) {
     }
 }
 
+/// Resolve anonymous forward references to their label names.
 fn anonymous_backward_pass(stats: &mut [ParsedStat]) {
     for stat in stats.iter_mut() {
         let mut last_name = None;
@@ -167,4 +207,11 @@ mod test {
         process_labels(&mut board);
         assert_snapshot!(board_to_text(board));
     }
+
+    #[test]
+    fn test_local_labels() {
+        let mut board = board_from_text("tests/labels/local.txt");
+        process_labels(&mut board);
+        assert_snapshot!(board_to_text(board));
+    }
 }
diff --git a/src/labels/sanitize.rs b/src/labels/sanitize.rs
index 3998466..05c493c 100644
--- a/src/labels/sanitize.rs
+++ b/src/labels/sanitize.rs
@@ -115,12 +115,19 @@ impl Registry {
     }
 
     fn preferred_name(label: &LabelName) -> CompactString {
-        let src = if let Some(local) = &label.local {
-            local
+        let mut result = CompactString::const_new("");
+        if label.namespace.is_some() || label.local.is_some() {
+            // Prevent namespaces and local labels from starting with a digit.
+            // This ensures stuff like `#take gems 100.99orless` won't compile
+            // to `#take gems 10099orless` (would parse incorrectly).
+            result.push('_');
+        }
+        if let Some(local) = &label.local {
+            result.push_str(local);
         } else {
-            &label.name
+            result.push_str(&label.name);
         };
-        CompactString::new(src)
+        result
     }
 
     fn is_valid_label(s: &CompactString) -> bool {
@@ -275,7 +282,8 @@ mod test {
         };
         let inputs = [
             simple("foo"),
-            full("alt", "foo", ""),
+            full("ns1", "foo", ""),
+            full("ns2", "foo", ""),
             full("", "foo", "thisloop"),
             full("", "foo", "thatloop"),
             full("", "bar", "thisloop"),
@@ -296,11 +304,12 @@ mod test {
         let result = results.join("\n");
         assert_snapshot!(result, @r#"
         LabelName { namespace: None, name: "foo", local: None } => foo
-        LabelName { namespace: Some("alt"), name: "foo", local: None } => foo0
-        LabelName { namespace: None, name: "foo", local: Some("thisloop") } => thisloop
-        LabelName { namespace: None, name: "foo", local: Some("thatloop") } => thatloop
-        LabelName { namespace: None, name: "bar", local: Some("thisloop") } => thisloop0
-        LabelName { namespace: None, name: "bar", local: Some("thatloop") } => thatloop0
+        LabelName { namespace: Some("ns1"), name: "foo", local: None } => _foo
+        LabelName { namespace: Some("ns2"), name: "foo", local: None } => _foo0
+        LabelName { namespace: None, name: "foo", local: Some("thisloop") } => _thisloop
+        LabelName { namespace: None, name: "foo", local: Some("thatloop") } => _thatloop
+        LabelName { namespace: None, name: "bar", local: Some("thisloop") } => _thisloop0
+        LabelName { namespace: None, name: "bar", local: Some("thatloop") } => _thatloop0
         LabelName { namespace: None, name: "bar1", local: None } => bar1
         LabelName { namespace: None, name: "bar2", local: None } => bar2
         LabelName { namespace: None, name: "bar123", local: None } => bar_
diff --git a/src/labels/snapshots/zasm__labels__process__test__local_labels.snap b/src/labels/snapshots/zasm__labels__process__test__local_labels.snap
new file mode 100644
index 0000000..af0fea6
--- /dev/null
+++ b/src/labels/snapshots/zasm__labels__process__test__local_labels.snap
@@ -0,0 +1,20 @@
+---
+source: src/labels/process.rs
+expression: board_to_text(board)
+---
+'Slightly contrived example: two routines
+'using the same local label ".loop"
+:run_w
+#walk w
+:_loop
+#try w stop
+#_loop
+'
+:run_e
+#walk e
+:_loop0
+#try e stop
+#_loop0
+'
+:stop
+#walk i
diff --git a/tests/labels/local.txt b/tests/labels/local.txt
new file mode 100644
index 0000000..141a81f
--- /dev/null
+++ b/tests/labels/local.txt
@@ -0,0 +1,16 @@
+'Slightly contrived example: two routines
+'using the same local label ".loop"
+:run_w
+#walk w
+:.loop
+#try w stop
+#.loop
+'
+:run_e
+#walk e
+:.loop
+#try e stop
+#.loop
+'
+:stop
+#walk i