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This paper presents a localized information processing approach for long-term, online structural health monitoring (SHM) using wireless sensor networks (WSNs). Based on the embedded AR-ARX method, each sensor independently calculates a statistical damage-sensitive coefficient using the measured acceleration data during each monitoring period. A nonlinear programming formulation is developed to identify damage presence, localize damage position, and quantify damage severity from the damage-sensitive coefficients in the whole sensing field. By limiting each sensor to exchange information among its neighboring sensors only, a localized near-optimal algorithm is proposed to reduce communication costs, thus alleviating the channel interference and prolonging the network lifetime. Simulation results on a steel frame structure prove the effectiveness of the proposed algorithm.