Integrated circuit packaging system with vertical interconnects and method of manufacture thereof

A method of manufacture of an integrated circuit packaging system includes: providing a base carrier having a base carrier hole from a base carrier interconnection side to a base carrier device side; mounting a base integrated circuit over the base carrier; forming an encapsulation over the base carrier covering the base integrated circuit, the encapsulation having an encapsulation top side and having an encapsulation hole directly over the base carrier hole; and forming an interconnection structure as a single integral structure through the base carrier hole and the encapsulation hole, the interconnection structure directly on the encapsulation top side and directly on the base carrier interconnection side.