We consider the problem of recovering hidden communities in the Labeled Stochastic Block Model (LSBM) with a finite number of clusters, where cluster sizes grow linearly with the total number $n$ of items. In the LSBM, a label is (independently) observed for each pair of items. Our objective is to devise an efficient algorithm that recovers clusters using the observed labels. To this end, we revisit instance-specific lower bounds on the expected number of misclassified items satisfied by any clustering algorithm. We present Instance-Adaptive Clustering (IAC), the first algorithm whose performance matches these lower bounds both in expectation and with high probability. IAC consists of a one-time spectral clustering algorithm followed by an iterative likelihood-based cluster assignment improvement. This approach is based on the instance-specific lower bound and does not require any model parameters, including the number of clusters. By performing the spectral clustering only once, IAC maintains an overall computational complexity of $\mathcal{O}(n \text{polylog}(n))$. We illustrate the effectiveness of our approach through numerical experiments.