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Despite recent advances in localization technology for mobile devices, to provide real-time position information to people indoors is still a big challenge; usually there is a trade-off between localization accuracy and infrastructural costs (e.g., dense anchor deployment). A possible solution would be employing cooperative approaches which utilize estimated positions of surrounding mobile nodes to complement a small number of anchors. However, it often results in poor estimation accuracy since a temporary large position error due to node mobility easily propagates to neighbor nodes. This paper presents a novel cooperative localization algorithm that addresses this problem by focusing on “stop-and-go behavior” of indoor pedestrians. The key idea is to collaboratively find movement state (moving or static) of each node based on peer-to-peer distance measurement which is inherently necessary for cooperative localization, and use only static nodes as reference points for localization to avoid potential accuracy deterioration. Also, nodes in static state can reduce localization frequency to conserve battery power, keeping the tracking quality. Through extensive simulations, we have demonstrated the performance of our method in terms of accuracy and energy efficiency. The effectiveness in a real application scenario has been also confirmed using a measurement-based sensor model and real mobility traces.