If you notice that /etc/shadow file password is using DES encryption, MD5 encryption can be enabled via:
authconfig --enablemd5 --enableshadow --update
If authconfig is not present edit, "/etc/pam.d/system-auth" and add "md5 shadow" to line starting with "password sufficient pam_unix.so" so it looks like below:
password sufficient pam_unix.so md5 shadow nullok try_first_pass use_authtok