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Level was established by IAG last year to focus on providing low-cost long-haul flights. IAG said on Thursday that the brand would be expanded into the short-haul market where it will compete with No.1 and No.2 low-cost airlines Ryanair and easyJet.
"We are launching this new shorthaul subsidiary to provide Austrian consumers with more flight choices across Europe," CEO Willie Walsh said in a statement.
Level will start flying on July 17 with flights between Vienna and Palma, Majorca and London Gatwick.
IAG already has a short-haul, low-cost carrier in Vueling, a Spain-based subsidiary.