We propose a real-space renormalization group (RG) transformation for quantum systems on a D-dimensional lattice. The transformation partially disentangles a block of sites before coarse-graining it into an effective site. Numerical simulations with the ground state of a 1D lattice at criticality show that the resulting coarse-grained sites require a Hilbert space dimension that does not grow with successive RG transformations. As a result we can address, in a quasi-exact way, tens of thousands of quantum spins with a computational effort that scales logarithmically in the system's size. The calculations unveil that ground state entanglement in extended quantum systems is organized in layers corresponding to different length scales. At a quantum critical point, each relevant length scale makes an equivalent contribution to the entanglement of a block. DOI: 10.1103/PhysRevLett.99.220405 PACS numbers: 05.30.ÿd, 02.70.ÿc, 03.67.Mn, 05.50.+q Renormalization group (RG), one of the conceptual pillars of statistical mechanics and quantum field theory, revolves around the idea of coarse-graining and rescaling transformations of an extended system [1]. These so-called RG transformations are not only a key theoretical element in the modern formulation of critical phenomena and phase transitions, but also the basis of important computational methods for many-body problems.In the case of quantum systems defined on a lattice, Wilson's real-space RG methods [2], based on the truncation of the Hilbert space, replaced Kadanoff's spinblocking ideas [3] with a concise mathematical formulation and an explicit prescription to implement RG transformations. But it was not until the advent of White's density matrix renormalization group (DMRG) algorithm [4] that RG methods became the undisputed numerical approach for systems on a 1D lattice. More recently, such techniques have gained renewed momentum under the influence of quantum information science. By paying due attention to entanglement, algorithms to simulate timeevolution in 1D systems [5] and to address 2D systems [6] have been put forward.The practical value of DMRG and related methods is unquestionable. And yet, they are based on a RG transformation that notably fails to satisfy a most natural expectation, namely, to have scale invariant systems as fixed points. Instead, for such systems, the size of an effective site (as measured by the dimension of its Hilbert space) increases with each iteration of the RG transformation. This fact does not only conflict with the very spirit of RG theory, but it also has important computational implications: after a sufficiently large number of iterations, the effective sites are unaffordably large, and the numerical method is no longer viable.In this Letter, we propose a real-space RG transformation for quantum systems on a D-dimensional lattice that, by renormalizing the amount of entanglement in the system, aims to eliminate the growth of the site's Hilbert space dimension along successive rescaling transformations. In particular, wh...