Plasmodium falciparum malaria is a major global health problem that is being targeted for progressive elimination. Knowledge of local disease transmission patterns in endemic countries is critical to these elimination efforts. To investigate fine-scale patterns of malaria transmission, we have compared repertoires of rapidly evolving var genes in a highly endemic area. A total of 3680 high-quality DBLalpha-sequences were obtained from 68 P. falciparum isolates from ten villages spread over two distinct catchment areas on the north coast of Papua New Guinea (PNG). Modelling of the extent of var gene diversity in the two parasite populations predicts more than twice as many var gene alleles circulating within each catchment (Mugil = 906; Wosera = 1094) than previously recognized in PNG (Amele = 369). In addition, there were limited levels of var gene sharing between populations, consistent with local parasite population structure. Phylogeographic analyses demonstrate that while neutrally evolving microsatellite markers identified population structure only at the catchment level, var gene repertoires reveal further fine-scale geospatial clustering of parasite isolates. The clustering of parasite isolates by village in Mugil, but not in Wosera was consistent with the physical and cultural isolation of the human populations in the two catchments. The study highlights the microheterogeneity of P. falciparum transmission in highly endemic areas and demonstrates the potential of var genes as markers of local patterns of parasite population structure.