A navigation system includes: a communication unit configured to receive vehicle environment information of a user vehicle, the vehicle environment information including proximate vehicle information representing proximately located vehicles relative to the user vehicle; and a control unit, coupled to the communication unit, configured to: determine lane reference vehicles from the proximately located vehicles based on a vehicle type of the proximately located vehicles; monitor the relative location of the lane reference vehicles; generate a road lane model including a lane delineation estimation based on the relative location of the lane reference vehicles; and calculate a lane position of the user vehicle according to the lane delineation estimation based on a lateral position shift of the user vehicle.