A method of manufacture of an integrated circuit packaging system includes: providing an integrated circuit; mounting a routing structure having a functional side above the integrated circuit; mounting a vertical interconnect to the functional side of the routing structure and the vertical interconnect extending vertically away from the routing structure; and forming an encapsulation that encapsulates the integrated circuit, the routing structure, and sides of the vertical interconnect above the routing structure, and leaves a surface of the routing structure exposed from the encapsulation, and a portion of the vertical interconnect exposed from the encapsulation above the surface of the routing structure.