The hallmarks of chromosome organization in multicellular eukaryotes are chromosome territories (CT), chromatin compartments, and insulated domains, including topologically associated domains (TADs). Yet, most of these elements of chromosome organization are derived from analyses of a limited set of model organisms, while large eukaryotic groups, including insects, remain mostly unexplored. Here we combine Hi-C, biophysical modeling, and microscopy to characterize the 3D genome architecture of the silkmoth, Bombyx mori. In contrast to other eukaryotes, B. mori chromosomes form highly separated territories. Similar to other eukaryotes, B. mori chromosomes segregate into active A and inactive B compartments, yet unlike in vertebrate systems, contacts between euchromatic A regions appear to be a strong driver of compartmentalization. Remarkably, we also identify a third compartment, called secluded "S," with a unique contact pattern. Each S region shows prominent short-range self-contacts and is remarkably devoid of contacts with the rest of the chromosome, including other S regions. Compartment S hosts a unique combination of genetic and epigenetic features, localizes towards the periphery of CTs, and shows developmental plasticity. Biophysical modeling reveals that the formation of such secluded domains requires highly localized loop extrusion within them, along with a low level of extrusion in A and B. Our Hi-C data supports predicted genome-wide and localized extrusion. Such a broad, non-uniform distribution of extruders has not been seen in other organisms. Overall, our analyses support loop extrusion in insects and highlight the evolutionary plasticity of 3D genome organization, driven by a new combination of known processes.