Spatial resolutions that permit eddies in ocean general circulation models tend to benefit the simulated ocean characteristics overall but are difficult to computationally achieve in Earth System Models. The Energy Exascale Earth System Model (E3SM) v2 has a regional mesh refinement capability that allows us to explore the climate implications of eddy-permitting resolutions. Here, we examine an ocean/sea-ice mesh configuration with 12 km in the Southern Ocean and resolutions of 30-60 km elsewhere. We show that this new regionally-refined configuration offers substantial benefits when compared with the standard resolution configuration of E3SM v2, which smoothly varies between 30 and 60 km resolution and thus is non-eddying in the Southern Ocean. We demonstrate improvements in Southern Ocean temperature and salinity biases as well as ice-shelf basal melt rates relative to observations, at 2-3 times the computational cost of the standard resolution configuration. These results pave the way for high-fidelity climate and sea-level rise projections when an active ice sheet model is coupled to E3SM components, a focus of future work.