A method of manufacture of an integrated circuit packaging system includes: providing a base substrate; applying a tiered encapsulant above the base substrate, the tiered encapsulant having a first cavity above the base substrate and a second cavity above the first cavity adjacent an intermediate horizontal side; connecting an intermediate interconnect to the base substrate, the intermediate interconnect surrounded by the tiered encapsulant and substantially exposed on the intermediate horizontal side; and connecting a top interconnect to the base substrate, the top interconnect surrounded by the tiered encapsulant and substantially exposed on a top horizontal side.