A system and method of manufacture of an integrated circuit packaging system includes: a photoimagable dielectric layer having a trace opening for exposing the carrier; a trace within the trace opening; an inner solder resist layer directly on the photoimagable dielectric layer and the trace, the inner solder resist layer having a bond pad opening for exposing the trace; an integrated circuit over the inner solder resist layer, the integrated circuit electrically connected to the trace through the bond pad opening; an encapsulation directly on the integrated circuit and the inner solder resist layer; and an external interconnect electrically coupled to the trace and the integrated circuit.