U.S. asset manager Franklin Resources Inc has dropped out of a consortium negotiating to buy American International Group Inc's asset management unit, a source familiar with the matter said on Tuesday.

But talks continue with others in the consortium, which includes private equity firm Crestview Partners, the source said.

AIG declined to comment. The source did not want to be identified because the talks are private.

AIG's asset management business had drawn interest from both private equity and strategic buyers, sources told Reuters previously. Initial bids for the unit had come in around $500 million but it has taken the company several months to work out a deal.

The sale is part of a larger program by AIG to divest assets to pay back the U.S. government after a bailout.

The government has committed some $180 billion in AIG's rescue, including about $83 billion in loans that the insurer is trying to repay through shedding its assets.

(Reporting by Paritosh Bansal; Editing by Valerie Lee)