An image processing system and method of operation includes: a source image having source pixels; homogeneous blocks in the source image having a block color; a homogeneous region in the source image formed by merging the homogeneous blocks having the block color within a color threshold; a text background region having text pixels and background pixels in the homogeneous region with the text background region having a texture feature above a texture threshold and a region size above a region size threshold; and a binary text mask representing the text pixels and the background pixels for displaying on a device.