Middle East respiratory syndrome coronavirus (MERS-CoV) can cause severe pneumonia in humans. The virus is enzootic in dromedary camels across the Middle East and Africa. It is acquired through animal contact and undergoes limited onward transmission particularly in hospitals. Because of this initial potential for human-to-human transmission, we monitor the virus for phenotypic changes related to its pandemic potential. Potential phenotypic changes have been suspected since the year 2015, when a novel recombinant clade (MERS-CoV lineage 5) caused large nosocomial outbreaks in Saudi Arabia and South Korea that effectively swept other, hitherto co-circulating viral lineages. To this day, lineage 5 remains the only circulating MERS-CoV lineage on the Arabian Peninsula. In spite of available sequence data, no studies of viral phenotype have been carried out to date. Here we performed a comprehensive in-vitro and ex-vivo comparison of live virus isolates taken in Saudi Arabia immediately before and after the shift toward lineage 5. We characterized seven isolates representing the recombination-parental lineage 3, eight isolates representing parental lineage 4, as well as eight isolates representing lineage 5. Replication of lineage 5 viruses is significantly increased over isolates from parental lineages in cell culture and ex-vivo lung models. Transcriptional profiling by real-time RT-PCR shows that several key immune genes (IFNb1, CCL5, IFNL1) are significantly less induced in lung cells infected with lineage 5 MERS-CoV compared to parental strains. In IFN receptor knock out cells, as well as under chemical inhibition of IFN signalling, the differences in replication level between lineage 5 and parental lineages are reduced, suggesting that phenotypic differences may be determined by IFN antagonism. Concordantly, lineage 5 shows increased resilience against interferon (IFN) pre-treatment of Calu-3 cells and maintains a 10-fold higher replication level under low and high concentrations of IFN. Reduced immune activation combined with enhanced virus replication and IFN resilience may explain the dominance of lineage 5 on the Arabian Peninsula. This phenotypic difference is highly relevant with regard to pandemic potential, and has remained undiscovered in spite of viral sequence surveillance.