Abstract Low temperature irradiation of crystalline materials is known to result in hardening and loss of ductility, which limits the usefulness of candidate materials in harsh nuclear environments. In body-centered cubic (bcc) metals, this mechanical property degradation is caused by the interaction of in-grown dislocations with irradiation defects, particularly small dislocation loops resulting from the microstructural evolution of displacement cascades. In this paper, we perform dislocation dynamics simulations of bcc Fe containing various concentrations of dislocation loops produced by irradiation in an attempt to gain insight into the processes that lead to hardening and embrittlement. We find that a transition from homogenous to highly localized deformation occurs at a critical loop density. Above it, plastic flow proceeds heterogeneously, creating defect-free channels in its wake. We find that channel initiation and size are mediated by loop coalescence resulting from elastic interactions with moving dislocations.