In order to investigate the effect of elevated mercury pollution on antibiotic tolerance and enzyme activities of human pathogens, we isolated a novel K. pneumoniae strain from the soil of a metallurgical dump yard that was capable of tolerating 250 μM HgCl2. Increasing concentration of Hg2+ in growth medium led to increased tolerance of the strain to ampicillin that was accompanied by increased secretion of extracellular polymeric substance (EPS). These results indicate that Hg2+-induced increased synthesis of EPS might be a key factor for increased tolerance of K. pneumoniae to ampicillin. The strain exhibited high catalase, alkaline phosphatase, mercuric reductase, amylase and lipase activity. Presence of 250 μM HgCl2 in growth medium increased mercuric reductase activity to 3 fold, however, no significant alteration in catalase, alkaline phosphatase and lipase was observed. The strain retained 86% amylase activity when grown in presence of 250 μM Hg2+. However, cell free lysate of the bacterium exhibited sensitivity towards Hg2+ leading to 30 to 40% decrease of these enzyme activities at 250 μM Hg2+. These results show that the bacterium possesses cellular mechanism to protect its enzymes from exogenous HgCl2. Our study reveals that increased heavy metal in the environment is a key factor leading to cross resistance of K. pneumoniae against membrane-targeted antibiotics ampicillin. Further, it’s a novel mercury-tolerant strain of K. pneumoniae isolate that exhibits high biotechnological potential for simultaneous bioremediation of mercury and production of industrially important enzymes.