By Pete Schroeder and Michelle Price

WASHINGTON (Reuters) - A panel of U.S. financial regulators voted on Friday to release American International Group (AIG.N) from stricter government oversight, marking the insurance giant's rehabilitation since a massive bailout during the 2007-2009 global financial crisis.

The U.S. Financial Stability Oversight Council (FSOC) determined that AIG - which received a $182 billion U.S. government bailout - is no longer critical to the health of the global financial system after shedding billions of dollars in assets.

The decision reflects the changing tone towards financial regulation under Republican President Donald Trump, who in April ordered a review of how FSOC determines which companies are systemically risky as part his broader pledge to ease post-crisis rules.

"The Council has worked diligently to thoroughly reevaluate whether AIG poses a risk to financial stability," said Treasury Secretary Steven Mnuchin.

"This action demonstrates our commitment to act decisively to remove any designation if a company does not pose a threat to financial stability."

The move frees AIG from stricter federal oversight, including tougher capital rules. The company's shares rose 1 percent in after-hours trading.

AIG's huge pile of credit derivatives helped spark the global financial crisis, and the company quickly became a focus of public outrage when employee bonuses were paid after the government bailout in September 2008.

The labeling of major financial institutions as systemically important had its roots in AIG's rescue, which came just before the company would have been forced to file for bankruptcy protection amid mounting losses on its derivatives book.

Worried the insurance giant was "too big to fail," the government stepped in to prevent further chaos to the financial system. The company ultimately repaid taxpayers in full by the end of 2012, with a profit of $22.7 billion, according to AIG.

Since the crisis, AIG, which remains the largest commercial insurer in the United States and Canada, has sold dozens of businesses, including two Asian life insurance operations and one of the world’s biggest aircraft leasing businesses. It recently sold a mortgage-insurance unit.

"The Council's decision reflects the substantial and successful de-risking that AIG's employees have achieved since 2008," AIG President and CEO Brian Duperreault said in a statement.

"The company is committed to continued vigilant risk management and to working closely with our numerous regulators to enable a strong AIG to continue to serve our clients."