In this work, heteroepitaxial vertically aligned nanocomposite (VAN) La0.9Ba0.1MnO3 (LBMO)-CeO2 films are engineered to produce ferromagnetic insulating (FMI) films. From combined X-ray photoelectron spectroscopy, X-ray diffraction and electron microscopy, the elimination of the insulator-metal (I-M) transition is shown to result from the creation of very small lateral coherence lengths (with the corresponding lateral size ~ 3 nm (~ 7 u.c.)) in the LBMO matrix, achieved by engineering a high density of CeO2 nanocolumns in the matrix. The small lateral coherence length leads to a shift in the valence band maximum and reduction of the double exchange (DE) coupling. There is no "dead layer" effect at the smallest lateral coherence length achieved of ~ 3 nm. The FMI behaviour obtained by lateral dimensional tuning is independent of substrate interactions, thus intrinsic to the film itself and hence not related to film thickness. The unique properties of VAN films give the possibility for multilayer spintronic devices that can be made without interface degradation effects between the layers.