A method of manufacture of an integrated circuit packaging system includes: providing a substrate; mounting a stiffener, having a stiffener opening completely through the stiffener, on the substrate; molding an encapsulation on the substrate and directly on an outer upper periphery surface of the stiffener and exposing an inner upper periphery surface of the stiffener, the encapsulation exposing a portion of the substrate; mounting an integrated circuit over the substrate and within the perimeter of the stiffener; and attaching a lid plate on the inner upper periphery surface of the stiffener and over the integrated circuit, the lid plate extending above an encapsulation top side.