An Infiniband (IB) router with an internal subnet architecture is disclosed. It comprises multiple port interface circuits interconnected by an internal IB subnet. The multiple port interface circuits each connect to an external IB subnet and preferably determine new local route headers (LRH) for global IB packets (i.e. packets having a global route header (GRH)). The new LRHs for externally received packets include a destination local identifier (DLID) value that identifies another port interface circuit in the router, whereas the new LRHs for internally received packets include a DLID value that identifies an end node or router in the external subnet to which the port interface circuit is attached. The internal IB subnet transports IB packets between the port interface circuits, directing them according to the contents of the LRHs. The internal subnet may take the form of an IB switch or a network of IB switches.