A method of manufacture of an integrated circuit packaging system includes: providing a package paddle having a hole, a recess, and a pad, the hole over the recess; mounting an integrated circuit to the package paddle; forming a lead having a bottom surface coplanar with a bottom surface of the pad, the lead isolated from the package paddle; attaching connectors directly on the integrated circuit, the lead, and the package paddle; and forming an encapsulation covering the integrated circuit and within the hole and the recess.