We have proposed and successfully demonstrated a two step method for localizing defects on an LSI chip. The first step is the same as a conventional laser-SQUID (L-SQUID) imaging where a SQUID and a laser beam are fixed during LSI chip scanning. The second step is a new L-SQUID imaging where a laser beam is stayed at the point, located in the first step results, during SQUID scanning. In the second step, a SQUID size (Aeff) and the distance between the SQUID and the LSI chip (ΔZ) are key factors limiting spatial resolution. In order to improve the spatial resolution, we have developed a micro-SQUID and the vacuum chamber housing both the micro-SQUID and the LSI chip. The Aeff of the micro-SQUID is a thousand of that of a conventional SQUID. The minimum value of ΔZ was successfully reduced to 25 µm by setting both the micro-SQUID and an LSI chip in the same vacuum chamber. The spatial resolution in the second step was shown to be 53 µm. Demonstration of actual complicated defects localization was succeeded, and this result suggests that the two step localization method is useful for LSI failure analysis.