A method of operation in a radio node that provides radio coverage in one or more cells local to the radio node, where the radio node is controlled by a gateway node that is coupled to a core network of a wireless communication network, and the method comprises selectively operating in a loopback mode of traffic handling for local data traffic going between given wireless devices operating in any of the one or more cells, based on: receiving control signaling from the gateway node indicating that the loopback mode of traffic handling is to be used with respect to a local-cell connection between a first wireless device in one of the one or more cells and a second wireless device in the same or another one of the one or more cells, wherein the given wireless devices comprise the first wireless device and the second wireless device; in response to the control signaling, changing from a default mode of traffic handling to the loopback mode of traffic handling, for the indicated local-cell connection; and subsequent to changing to the loopback mode of traffic handling, processing the local data traffic on the indicated local-cell connection according to the loopback mode of traffic handling; wherein, in the default mode of traffic handling, local data traffic and non-local data traffic sent from a given wireless device in any of the one or more cells is encrypted by the given wireless device for decryption by the gateway node, and the radio node forwards all such data traffic to the gateway node for processing; wherein, in the loopback mode of traffic handling, local data traffic sent from a given wireless device in any of the one or more cells is encrypted by the given wireless device using a public key from a first public-private key pair allocated to the given wireless device for the loopback mode of traffic handling, and the radio node encrypts the local data traffic with a loopback encryption key derived from a private key contained in the first public-private key pair and a private key contained in a second public-private key pair used by another given wireless device that is in any of the one or more cells and is targeted by the local data traffic, thereby obtaining transformed local data traffic that is decipherable by the targeted wireless device via the private key of the second public-private key pair, and wherein the radio node transmits the transformed data traffic to the targeted wireless device. receiving control signaling from the gateway node indicating that the loopback mode of traffic handling is to be used with respect to a local-cell connection between a first wireless device in one of the one or more cells and a second wireless device in the same or another one of the one or more cells, wherein the given wireless devices comprise the first wireless device and the second wireless device; in response to the control signaling, changing from a default mode of traffic handling to the loopback mode of traffic handling, for the indicated local-cell connection; and subsequent to changing to the loopback mode of traffic handling, processing the local data traffic on the indicated local-cell connection according to the loopback mode of traffic handling;