The sensor technology and the packaging method influence drastically the device performance by conditioning its sensitivity, the operating conditions and the distance between the magnetic source and the sensor. Magnetic encoders based on magnetoresistive (MR) sensors standout as a technology immune to dust, oil and fluids, and a cheaper system than optical solutions. Furthermore, they provide a higher spatial resolution, sensitivity and bandwidth than Hall effect sensors. However, to achieve a competitive prototype for applications with high constraints, it is necessary to combine state-of-the-art MR sensors with a packaging solution that entails a minimum impact on the sensor performance. Therefore, a new packaging method developed at wafer level is proposed for motion and positioning systems in planar architectures. The final prototype consists on a hybrid rigid-flexible MR probe combining a sensing chip with a flexible polyimide (PI) connector. This packaging technique pushes the contacts and establish electrical contact with the outer electronics on the back side or at a lower level parallel to the sensor plane, achieving a minimum distance of 7.5 μm between the sensor and the magnetic source. Finally, the device was successfully implemented as a magnetic encoder on a linear magnetic scale with 80 μm bit length revealing a sin/cos like signal with an amplitude of 42 mVRMS at a reading distance of 80 μm.