Target control with in the update panel

Move the ModalPopupExtender to the first update panel:

<asp:ImageButton ID="imgSearch" runat="server" Width="15px" ImageUrl="~/images/search.png"
                            AlternateText="Select Area" OnClientClick="FileUploadPopup()" />                     
                     
    <ajax:ModalPopupExtender ID="mpopArea1" runat="server" OkControlID="imgClose"
        PopupControlID="pnlPopUpsearch" BackgroundCssClass="modalBackground" TargetControlID="imgSearch">
    </ajax:ModalPopupExtender>
Panel out side of the update panel
    <asp:Panel ID="pnlPopUpsearch" runat="server">
      <asp:Label ID="lblTest" runat="server" Text="Welcome">

      </asp:Label>

 </asp:Panel>