The extent of phase separation and water percolation in sulfonated membranes are the key to their performance in fuel cells. Toward this, the effect of hydration on the morphology and transport characteristics of sulfonated poly(ether ether ketone), sPEEK, membrane is investigated using atomistic molecular dynamics (MD) simulation at various hydration levels (λ: number of water molecules per sulfonate group) between 4 and 15. At the molecular level, the evolution of local morphology is investigated in terms of structural pair correlations and minimum pair distances, and the transport properties are studied in terms of mean squared displacements (MSDs) and diffusion coefficients. The water-sulfur interaction in sPEEK is found to be stronger than that in Nafion, as observed in experiments. As opposed to Nafion, a weaker interaction of hydronium, with sulfonate, than water is observed. The behavior of water in sPEEK membrane is found to remain far from bulk as indicated by its diffusion coefficient. Analysis of simulation data indicate that at low λ, the largest water cluster forms a narrow connected path of water molecules and hydronium ions. With increasing λ, larger water domains appear, spanning more than half of the simulation box at λ = 15. Small isolated clusters are present at all hydration levels, demonstrating the extent of phase separation in sPEEK to be lesser than that in Nafion. Various analyses, both at molecular and collective level, suggest the occurrence of a percolation transition between λ = 8 and 10, which leads to a connected network of water channels in the membrane, thereby boosting the mobility of hydronium ions.