Bailed-out insurance giant American International Group has slashed its exposure to credit derivatives by nearly two-thirds under government ownership, but a full recovery for taxpayers remains uncertain, a senior U.S. Treasury official said on Wednesday.

Jim Millstein, the Treasury's chief restructuring officer, said told the Congressional Oversight Panel that the Treasury would seek to sell its stake as soon as practicable after AIG boosts its credit rating to single-A status.

Millstein, in prepared testimony, said AIG's credit default swaps exposure was now down to $136 billion from about $400 billion -- with about $109 billion of the remaining exposure tied to transactions with European banks.

(Reporting by David Lawder; Editing by Theodore d'Afflisio)