Label propagation is a popular semi-supervised learning technique that transfers information from labeled examples to unlabeled examples through a graph. Most label propagation methods construct a graph based on example-to-example similarity, assuming that the resulting graph connects examples that share similar labels. Unfortunately, examplelevel similarity is sometimes badly defined. For instance, two images may contain two different objects, but have similar overall appearance due to large similar background. In this case, computing similarities based on whole-image would fail propagating information to the right labels. This paper proposes a novel Instance-Level Label Propagation (ILLP) approach that integrates label propagation with multi-instance learning. Each example is treated as containing multiple instances, as in the case of an image consisting of multiple regions. We first construct a graph based on instancelevel similarity and then simultaneously identify the instances carrying the labels and propagate the labels across instances in the graph. Optimization is based on an iterative Expectation Maximization (EM) algorithm. Experimental results on two benchmark datasets demonstrate the effectiveness of the proposed approach over several state-of-theart methods.