Warm and salty Atlantic Water is transported by the Norwegian Atlantic Current through the Nordic Seas. A fraction of it enters the Arctic Ocean where it contributes significantly to its heat budget. Resolving the complex circulation structure in the Nordic Seas, in particular eddies, presents a numerical challenge in ocean models. Here, we present a hindcast experiment for the years 1969–2009 with a global configuration of the Finite Element Sea-ice Ocean Model, employing a high-resolution mesh in the Nordic Seas and Arctic Ocean (4.5 km). We show that substantial improvements can be achieved in the circulation structure, hydrography and eddy kinetic energy in the Nordic Seas compared with a coarse-resolution reference run. A better represented Norwegian Atlantic Front Current (NwAFC) in the high-resolution setup leads to a reduction of a strong negative temperature bias in the eastern Nordic Seas. The Atlantic Water inflow through the Iceland-Faroe Ridge is found to be very sensitive to mesh resolution, and high resolution is required to adequately represent this inflow and the downstream NwAFC. With increased mesh resolution, the simulated ocean temperature is significantly improved at Barents Sea Opening (BSO), and the Atlantic Water volume transport in Fram Strait becomes much closer to observations in terms of both magnitude and variability. By using passive tracers, the origins of water masses at BSO and Fram Strait are identified. Our study also indicates that eddy-resolving meshes are required to further improve the representation of dynamical processes in the region, in particular in Fram Strait.