An image processing system, and a method of operation thereof, including: a capture device for obtaining a base input image; and an image signal processing hardware including: a pre-processing module for: partitioning the base input image into base image blocks, generating an input image block based on the base image blocks, inverting the input image block associated with some of the positions within the base input image; a wavelet transform module for generating a transformed image block based on the input image block; a coding module for generating a scaled wavelet block based on the transformed image block, the coding module for generating a compressed image block based on the scaled wavelet block; and a decoding module and an inverse wavelet transform module for generating an output image block by decoding and performing an inverse wavelet transform on the compressed image block for display on a display device.