The structures and stabilities of small water clusters are studied by local electron correlation methods. It is demonstrated that the local treatment eliminates basis set superposition errors (BSSEs) to a large extent and thus allows BSSE-free geometry optimizations. Results for various basis sets are presented which show that the interaction energies and structural parameters obtained by local second-order Moller-Plesset perturbation theory (LMP2) without counterpoise correction are in close agreement with counterpoise-corrected conventional MP2 results. Furthermore, a partitioning of the LMP2 energies of (H2O)(n), n = 2-4, into different excitation classes is reported, which underlines the importance of ionic contributions as well as intramolecular correlation for hydrogen-bonded clusters. The results of this analysis are compared with previous data obtained by symmetry-adapted perturbation theory (SAPT).