Drug repositioning is an important approach for predicting new disease indications of the existing drugs in drug discovery. A great progress has been achieved in drug repositioning. However, effectively utilizing the localized neighborhood interaction features of drug and disease in drug-disease associations remains challenging. This paper proposes a neighborhood interaction-based method called NetPro for drug repositioning via label propagation. In NetPro, we first formulate the known drug-disease associations, various disease and drug similarities from different perspectives to construct drug-drug and disease-disease networks. Meanwhile we employ the nearest neighbors and their interactions in the constructed networks to devise a new approach for computing drug similarity and disease similarity. To implement the prediction of new drugs or diseases, a preprocessing step is applied to renew the known drug-disease associations using our calculated drug and disease similarities. We then employ a label propagation model to predict drug-disease associations by the drug and disease linear neighborhood similarities derived from the renewed drug-disease associations. The experimental results on three benchmark datasets show that NetPro can effectively identify potential drug-disease associations and achieve better prediction performance than the existing methods. Case studies further demonstrate that NetPro is capable of predicting promising candidate disease indications for drugs.