A novel Local Iterative Physical Optics (LIPO) algorithm for electromagnetic scattering of layered dielectric media with rough surfaces has been developed to simulate the electromagnetic scattering of electrically large dielectric layers with relatively smooth surfaces variation. The LIPO algorithm iteratively corrects the equivalent local surface currents according to the conventional PO theorem to compensate for the electromagnetic field deviation across the dielectric layers’ surfaces. Numerical validation has been performed with one-layer water surface and two-layer soil surfaces to show the performance of the proposed LIPO algorithm. The experimental result shows that it takes only a few iterations for the algorithm to increase the surface current accuracy by more than three orders of magnitude, compared to the conventional PO theorem.