The network operator has launched an online interface, created by R/GA London, which enables small business to upload deals based on their location.
Deals will be served alongside the national offers to O2's millions of Priority Moments users.
Unlike daily deals sites, O2 is not using a sales team to deal with the businesses who want to use the service. It will not take a revenue share or define the terms of the offer, making it free for them to take part.
Participating business upload their deal, logo, information about the offer's timespan and how many units they wish to sell. The deal will then appear within 24-hours of being submitted.
O2 will have a vetting process in place to ensure quality control of the deals and the products and services available are appropriate. There will be a star rating in place for merchants.
Speaking to Marketing, Sally Cowdry, marketing and consumer director at O2, said the scheme has been derived from customer insight around the move towards local.
She said: "We have found that with the economic pressures in UK people are getting ever more focused on local – my high street, my community, my local independent shop – the sphere of concern is getting smaller.
"By taking our relationship deeper and on a more emotional level, rather than just minutes, texts and handsets, it means our customers are happier, more loyal and stay with us for longer and buy more from us."
She added that with one of the largest costs for a small business being marketing, taking part in the scheme enables the smaller firms to get a free listing, with specific location based marketing. "B2B2C benefit all the way along the chain," she said.
The service launches today and will be available to O2 business customers initially, before rolling out more widely to all small businesses.
The operator will support the launch with a business to business campaign, and will be targeting O2 customers through its various channels.
"There are lots of similarities you can draw between Daily deals site and Priority Moments, but with the volume of offer, the fact it is location-based online offers too, we see it as really quite different," said Cowdry.
The expansion comes one year after O2 launched its Priority Moments scheme..
This week following the recent network outage. Cowdry stressed that the system for the Priority Moments application is "totally unrelated" to the mobile network.
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