Most peer-to-peer (P2P) systems build their own overlay networks for implementing peer selection strategies without taking into account the locality on the underlay network. As a result, a large quantity of traffic crossing internet service providers (ISPs) or autonomous systems (ASes) is generated on the Internet. Controlling the P2P traffic is therefore becoming a big challenge for the ISPs. To control the cost of the cross-ISP/AS traffic, ISPs often throttle and/or even block P2P applications in their networks. In this paper, we propose a router-aided approach for localizing the P2P traffic hierarchically; it features the insertion of additional delay into each P2P packet based on geographical location of its destination. Compared to the existing approaches that solve the problem on the application layer, our proposed method does not require dedicated servers, cooperation between ISPs and P2P users, or modification of existing P2P application software. Therefore, the proposal can be easily utilized by all types of P2P applications. Experiments on P2P streaming applications indicate that our hierarchical traffic localization method not only reduces significantly the inter-domain traffic but also maintains a good performance of P2P applications.