American International Group offered on Thursday to buy back, for $15.7 billion cash, mortgage-backed securities the U.S. government had taken off the bailed-out insurer's hands during the financial crisis.

AIG, which is 92 percent owned by the government, said the Federal Reserve Bank of New York will make a profit of about $1.5 billion on its residual equity interest in Maiden Lane II, the entity that holds the securities, if it accepts the offer.

AIG said in a U.S. Securities and Exchange Commission filing that the total outstanding assistance to it will be reduced by about $13 billion to some $26 billion if its offer is accepted.

Maiden Lane II was formed in December 2008 and took over about $20.5 billion of residential mortgage backed securities in a bid to ease liquidity pressure on AIG due to its securities lending program.

(Reporting by Paritosh Bansal; Editing by Tim Dobbyn)