A method of manufacture of an integrated circuit packaging system includes: providing a base substrate; attaching a component over the base substrate; attaching a component interconnect to the base substrate and a perimeter of the component; mounting a stack device over the component; attaching a base exposed interconnect directly on the component and next to the component interconnect; and forming a base encapsulation over the base substrate, the component, and the component interconnect, the base exposed interconnect partially exposed from the base encapsulation.