A new approach for the interactive simulation of viscoelastic object cutting is presented. Two synchronized geo- metrical models at different resolutions are used, both derived from medical images. In contrast with most previous approaches, the blade deforms the object, and cutting occurs once a contact pressure threshold is exceeded. Moreover, we achieve interactive simulation rates by embedding a high resolution geometry within a regular grid with arbitrary resolution. This allows to trade off accuracy for speed in the computation of deformations. The input data is a high- resolution volumetric model of the objects. The surface model of the object, used for rendering as well as collision detection and response, is a polygonal level set of the volumetric data. It is embedded in the volume model using barycentric coordinates. Cutting is performed by removing voxels at the fine level, and updating the surface and volume models accordingly. We introduce a new data structure, which we call a Dynamic Branched Grid, in order to preserve the fine level topology at the coarse level. When an element of the coarse volumetric model is cut, it is replaced by a number of superimposed elements with the same size and at the same rest position as the original one. Each new element is assigned a part of material contained in the original one, and the mass and stiffness are recomputed accordingly. The well-known problem of creating small, ill-shaped finite elements while remeshing is thus completely avoided.