A model subspace configuration interaction method is developed to obtain chemically accurate electron correlations by diagonalizing a very compact effective Hamiltonian of a realistic molecule. The construction of the effective Hamiltonian is deterministic and implemented by iteratively building a sufficiently small model subspace comprising local clusters of a small number of Slater determinants. Through the low-rank reciprocal of interaction Hamiltonian, important determinants can be incrementally identified to couple with selected local pairwise clusters and then downfolded into the model subspace. This method avoids direct ordering and selection of the configurations in the entire space. We demonstrate the efficiency and accuracy of this theory for obtaining the near-FCI ground- and excited-state potential energies by benchmarking the C2 molecule and illustrate its application potential in computing accurate excitation energies of organometallic [Cu(NHC)2(pyridine)2]x+ complexes and other organic molecules of various excitation character.