A method of manufacture of an integrated circuit packaging system includes: forming a connection carrier having base device pads and base interconnect pads on a carrier top side of the connection carrier; connecting a base integrated circuit to the base device pads and mounted over the carrier top side; mounting base vertical interconnects directly on the base interconnect pads; attaching a base package substrate to the base integrated circuit and directly on the base vertical interconnects; forming a base encapsulation on the base package substrate, the base device pads, and the base interconnect pads; and removing a portion of the connection carrier with the base device pads and the base interconnect pads partially exposed opposite the base package substrate.