A novel oxygen vacancy assisted transition metal (TM) diffusion mechanism is proposed for the first time to explain the near-surface phase transformation in lithium excess transition metal layered oxides. Oxygen vacancies and TM migration have been observed at nm scale spatial resolution by Scanning Transmission Electron Microscopy and Electron Energy Loss Spectroscopy. Formation of (dilute) oxygen vacancies and their roles in assisting transition metal ion diffusion were further investigated using first principles calculations. The activation barriers of TM diffusion in the presence of oxygen vacancies are drastically reduced and consistently in a reasonable range for room temperature diffusion