A method of manufacture of an integrated circuit packaging system includes: fabricating a base package substrate having a component side and a system side; coupling a first integrated circuit die on the component side; coupling stacking interconnects on the component side around the first integrated circuit die; forming a package body on the component side, the first integrated circuit die, and the stacking interconnects; forming vertical insertion cavities through the package body and on the stacking interconnects; and forming a trench, in the package body, adjacent to the vertical insertion cavities for reducing a package warping stress.