We investigate the effect of inertial particles dispersed in a circular patch of finite radius on the stability of a two-dimensional Rankine vortex in semi-dilute dusty flows. Unlike the particle-free case where no unstable modes exist, we show that the feedback force from the particles triggers a novel instability. The mechanisms driving the instability are characterized using linear stability analysis for weakly inertial particles and further validated against Eulerian–Lagrangian simulations. We show that the particle-laden vortex is always unstable if the mass loading $M>0$ . Surprisingly, even non-inertial particles destabilize the vortex by a mechanism analogous to the centrifugal Rayleigh–Taylor instability in radially stratified vortex with density jump. We identify a critical mass loading above which an eigenmode $m$ becomes unstable. This critical mass loading drops to zero as $m$ increases. When particles are inertial, modes that fall below the critical mass loading become unstable, whereas modes above it remain unstable but with lower growth rates compared with the non-inertial case. Comparison with Eulerian–Lagrangian simulations shows that growth rates computed from simulations match well the theoretical predictions. Past the linear stage, we observe the emergence of high-wavenumber modes that turn into spiralling arms of concentrated particles emanating out of the core, while regions of particle-free flow are sucked inward. The vorticity field displays a similar pattern which leads to the breakdown of the initial Rankine structure. This novel instability for a dusty vortex highlights how the feedback force from the disperse phase can induce the breakdown of an otherwise resilient vortical structure.