A video coding system, and a method of operation thereof, includes: a source input module for receiving a frame from a video source; and a picture process module, coupled to the source input module, for generating a reference coding unit in the frame; for generating an intra copy motion vector pointing to the reference coding unit within a search range, wherein the search range does not include an upper coding tree unit of the frame; for generating a current coding unit based on the intra copy motion vector; and for generating a video bitstream based on the current coding unit for a video decoder to receive and decode for displaying on a device.