State-space modeling is a promising approach for current source reconstruction from magnetoencephalography (MEG) because it constrains the spatiotemporal behavior of inverse solutions in a flexible manner. However, state-space model-based source localization research remains underdeveloped; extraction of spatially focal current sources and handling of the high dimensionality of the distributed source model remain problematic. In this study, we propose a novel state-space model-based method that resolves these problems, extending our previous source localization method to include a temporal constraint by state-space modeling. To enable focal current reconstruction, we account for spatially inhomogeneous temporal dynamics by introducing dynamics model parameters that differ for each cortical position. The model parameters and the intensity of the current sources are jointly estimated according to a bayesian framework. We circumvent the high dimensionality of the problem by assuming prior distributions of the model parameters to reduce the sensitivity to unmodeled components, and by adopting variational bayesian inference to reduce the computational cost. Through simulation experiments and application to real MEG data, we have confirmed that our proposed method successfully reconstructs focal current activities, which evolve with their temporal dynamics.