Stable and flexible neural representations of space in the hippocampus are crucial for navigating complex environments. However, how these distinct representations emerge from the underlying local circuit architecture remains unknown. Using two-photon imaging of CA3 subareas during active behavior, we reveal opposing coding strategies within specific CA3 subregions, with proximal neurons demonstrating stable and generalized representations and distal neurons showing dynamic and context-specific activity. We show in artificial neural network models that varying the recurrence level causes these differences in coding properties to emerge. We confirmed the contribution of recurrent connectivity to functional heterogeneity by characterizing the representational geometry of neural recordings and comparing it with theoretical predictions of neural manifold dimensionality. Our results indicate that local circuit organization, particularly recurrent connectivity among excitatory neurons, plays a key role in shaping complementary spatial representations within the hippocampus.