This is a term derived from the commonly known insult 'mug'; meaning someone who has been treated like an idiot, or been severely nieve.
If you have been 'mugged off' someone has clearly made you into a 'mug', hence you have been insulted deeply. A 'mugging off' often deserves a swift backhand across the perpetrator's derriere.
'If you don't stop dissin me crew you're gonna have the ultimate muggin off in front of your pals'
'I'VE BEEN MUGGED OFF! HE DISSED ME AND ME CREW'
'You muggin me off? Nah bruv nah, i'll have to get me pals to blaze you now innit'