Fe7Se8 exists as a hexagonal NiAs-like crystal structure with a large number of ordered intrinsic vacancies. It is an ideal candidate for studying the effect of defects on properties such as magnetism and electrical transport. In this work, highly crystalline Fe7Se8 with the 3c crystal structure was synthesized by a solid-state reaction. Sharp changes in the magnetization at 100 K confirm a rotation of the spins from the ab plane to the c axis with decreasing temperature. We observe an interesting metal insulator transition at the same temperature as the spin-direction changes. We propose that locked spins in the grain boundaries induce electron localization and result in the metal insulator transition. Electron localization is confirmed by X-ray photoelectron spectroscopy of the Fe 2p peaks, which exhibit two characteristic satellite peaks. This mechanism is also verified by comparing it with the properties of the 4c-Fe7Se8 crystal structure.