Aims. Future astrophysics and cosmic microwave background space missions operating in the far-infrared to millimetre part of the spectrum will require very large arrays of ultra-sensitive detectors in combination with high multiplexing factors and efficient low-noise and low-power readout systems. We have developed a demonstrator system suitable for such applications. Methods. The system combines a 961 pixel imaging array based upon Microwave Kinetic Inductance Detectors (MKIDs) with a readout system capable of reading out all pixels simultaneously with only one readout cable pair and a single cryogenic amplifier. We evaluate, in a representative environment, the system performance in terms of sensitivity, dynamic range, optical efficiency, cosmic ray rejection, pixel-pixel crosstalk and overall yield at an observation centre frequency of 850 GHz and 20% fractional bandwidth. Results. The overall system has an excellent sensitivity, with an average detector sensitivity (NEPdet) =3 × 10-19 W/Hz measured using a thermal calibration source. At a loading power per pixel of 50 fW we demonstrate white, photon noise limited detector noise down to 300 mHz. The dynamic range would allow the detection of ~1 Jy bright sources within the field of view without tuning the readout of the detectors. The expected dead time due to cosmic ray interactions, when operated in an L2 or a similar far-Earth orbit, is found to be <4%. Additionally, the achieved pixel yield is 83% and the crosstalk between the pixels is <-30 dB. Conclusions. This demonstrates that MKID technology can provide multiplexing ratios on the order of a 1000 with state-of-the-art single pixel performance, and that the technology is now mature enough to be considered for future space based observatories and experiments.