Fitting potential energy surfaces to analytic forms is an important first step for efficient molecular dynamics simulations. Here, we present an improved version of the local interpolating moving least squares method (L-IMLS) for such fitting. Our method has three key improvements. First, pairwise interactions are modeled separately from many-body interactions. Second, permutational invariance is incorporated in the basis functions, using permutationally invariant polynomials in Morse variables, and in the weight functions. Third, computational cost is reduced by statistical localization, in which we statistically correlate the cutoff radius with data point density. We motivate our discussion in this paper with a review of global and local least-squares-based fitting methods in one dimension. Then, we develop our method in six dimensions, and we note that it allows the analytic evaluation of gradients, a feature that is important for molecular dynamics. The approach, which we call statistically localized, permutationally invariant, local interpolating moving least squares fitting of the many-body potential (SL-PI-L-IMLS-MP, or, more simply, L-IMLS-G2), is used to fit a potential energy surface to an electronic structure dataset for N4. We discuss its performance on the dataset and give directions for further research, including applications to trajectory calculations.