1. A method of operation of an image processing system comprising: receiving a source image having source pixels; forming a homogeneity image having homogeneity pixels each with a homogeneity value indicating the local homogeneity of source pixels of the source image; forming a watershed image by segmenting the homogeneity image, the watershed image having watershed segments with a segment weight; merging one of the watershed segments with another of the watershed segments with both of the watershed segments having the segment weight less than or equal to a segment threshold; forming a segmentation contour map having the boundaries of the watershed segments formed by merging the watershed segments; and forming a composite image with the segmentation contour map overlaying the source image for display on a device.