This paper describes a new multilevel procedure that can solve the discrete Navier–Stokes system arising from finite volume discretizations on composite grids, which may consist of more than one level. SIMPLE is used and tested as the smoother, but the multilevel procedure is such that it does not exclude the use of other smoothers. Local refinement is guided by a criterion based on an estimate of the truncation error. The numerical experiments presented test not only the behaviour of the multilevel algebraic solver, but also the efficiency of local refinement based on this particular criterion. Copyright © 2006 John Wiley & Sons, Ltd.