In order to increase the reactor advantages of the reversed field pinch (RFP) concept, the possibility of limiting the plasma region by means of a magnetic separatrix has been discussed. However, in experiments on this type of configuration a large pressure gradient, and an associated diamagnetic current, is observed in the separatrix region. The present paper investigates the effect of such a pressure gradient on the MHD stability of the plasma. It is shown both analytically and numerically that, due to the low value of Bz near the plasma boundary, such a system is susceptible to a short-wavelength, edge-localized kink instability, driven by the pressure gradient. These instabilities are akin to the edge-localized modes encountered in high-beta, H-mode tokamak plasmas. Furthermore, while the long-wavelength branch of the m=1 mode is effectively stabilized by a close-fitting conducting wall, the edge-localized kink mode is found to be more or less unaffected by the wall, and persists even when the wall distance shrinks to zero.