A clustered base transceiver station (BTS) coordination strategy is proposed to realize the gains of multiuser MIMO communication in interference-limited cellular systems. In the proposed coordination strategy, users are divided into two groups: a full intra-cluster coordination group to enhance the sum rate gain and a limited inter-cluster coordination group to reduce interference for the cluster edge users. Multi-cell block diagonalization is used to coordinate the transmissions across multiple BTSs in the same cluster. Because of the per-BTS power constraints, three combined precoder and power allocation algorithms are considered in this paper with different performance complexity tradeoffs. Simulations show that the proposed coordination strategy improves the sum rate over conventional systems and reduces the impact of interference for the cluster-edge users.