The highly pathogenic avian influenza (HPAI) A(H5N1) virus is endemic in Indonesian poultry and has caused sporadic human infection in Indonesia since 2005. Surveillance of H5N1 viruses in live bird markets (LBMs) during 2012 and 2013 was carried out to provide epidemiologic and virologic information regarding viral circulation and the risk of human exposure. Real-time RT-PCR of avian cloacal swabs and environmental samples revealed influenza A-positive specimens, which were then subjected to virus isolation and genomic sequencing. Genetic analysis of specimens collected at multiple LBMs in Indonesia identified both low pathogenicity avian influenza (LPAI) A(H3N8) and HPAI A(H5N1) viruses belonging to clade 2.1.3.2a. Comparison of internal gene segments among the LPAI and HPAI viruses revealed that the latter had acquired the PB2, PB1, and NS genes from LPAI progenitors and other viruses containing a wild type (wt) genomic constellation. Comparison of murine infectivity of the LPAI A(H3N8), wt HPAI A(H5N1) and reassortant HPAI A(H5N1) viruses showed that the acquisition of LPAI internal genes attenuated the reassortant HPAI virus, producing a mouse infectivity/virulence phenotype comparable to that of the LPAI virus. Comparison of molecular markers in each viral gene segment suggested that mutations in PB2 and NS1 may facilitate attenuation. The discovery of an attenuated HPAI A(H5N1) virus in mice that resulted from reassortment may have implications for the capability of these viruses to transmit and cause disease. In addition, surveillance suggests that LBMs in Indonesia may play a role in the generation of reassortant A(H5) viruses and should be monitored.