Functional module identification in biological networks may provide new insights into the complex interactions among biomolecules for a better understanding of cellular functional organization. Most of existing functional module identification methods are based on the optimization of network modularity and cluster networks into groups of nodes within which there are a higher-than-expectation number of edges. However, module identification simply based on this topological criterion may not discover certain kinds of biologically meaningful modules within which nodes are sparsely connected but have similar interaction patterns with the rest of the network. In order to unearth more biologically meaningful functional modules, we propose a novel efficient convex programming algorithm based on the subgradient method with heuristic path generation to solve the problem in a recently proposed framework of blockmodel module identification. We have implemented our algorithm for large-scale protein-protein interaction (PPI) networks, including Saccharomyces cerevisia and Homo sapien PPI networks collected from the Database of Interaction Proteins (DIP) and Human Protein Reference Database (HPRD). Our experimental results have shown that our algorithm achieves comparable network clustering performance in comparison to the more time-consuming simulated annealing (SA) optimization. Furthermore, preliminary results for identifying fine-grained functional modules in both biological networks and the comparison with the commonly adopted Markov Clustering (MCL) algorithm have demonstrated the potential of our algorithm to discover new types of modules, within which proteins are sparsely connected but with significantly enriched biological functionalities.