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Bluetooth is a short range technology that enables the formation of wireless personal area networks (WPAN). Although a Bluetooth node can form a network, called a piconet, with other nodes within its radio range, the technology can be better exploited if multiple piconets can be interconnected to form a large overlay network called a scatternet. We propose a mesh topology scatternet formation (MTSF) algorithm for Bluetooth networks. The algorithm has short delays for new node acceptance and scatternet formation while localizing the impact of node additions and deletions. Using extensive simulations based on the ns-2 simulator we demonstrate that MTSF is well suited for scatternet formation over a large area as it is distributed and scalable both in terms of the number of nodes and in the area spanned by the scatternet.