In this work, we show that significant enhancement of superconducting properties of MgB2 thin films prepared by vacuum evaporation and ex-situ annealing can be obtained when the annealing is performed in O-2 atmosphere instead of the usually employed inert atmosphere (Ar in the current study). Rapid annealing in O-2 significantly improves the critical transition temperature (T-c), critical current density (j(c)), and upper critical magnetic field (H-c2) compared to the control sample prepared in the same way, but annealed in Ar. Structural and composition analyses of the films demonstrate that the annealing in O-2 atmosphere produces a sufficiently thick MgO layer on the surface of MgB2 thin films, which acts as a protective barrier preventing out-diffusion of Mg from the films during the high-temperature annealing. This consequently leads to better stoichiometry (B/Mg ratio), increased MgB2 grain size and enhanced intergrain connectivity. The higher residual resistivity of the films annealed in O-2 atmosphere also indicates higher concentration of intragrain impurities, which causes a further increase of the j(c) and H-c.