We developed a source blocking optimization algorithm for Gamma Knife radiosurgery, which is based on tracking individual source contributions to arbitrarily shaped target and critical structure volumes. A scalar objective function and a direct search algorithm were used to produce near real-time calculation results. The algorithm allows the user to set and vary the total number of plugs for each shot to limit the total beam-on time. We implemented and tested the algorithm for several multiple-isocenter Gamma Knife cases. It was found that the use of limited number of plugs significantly lowered the integral dose to the critical structures such as an optical chiasm in pituitary adenoma cases. The main effect of the source blocking is the faster dose falloff in the junction area between the target and the critical structure. In summary, we demonstrated a useful source-plugging algorithm for improving complex multi-isocenter Gamma Knife treatment planning cases.