NEW YORK — American International Group said Thursday it will reduce outstanding federal loans by $25 billion by giving the government a preferred stake in two units that will be spun off from the insurance giant.

AIG is placing two life insurance subsidiaries — American International Assurance and American Life Insurance — into special purpose vehicles ahead of planned initial public offerings. SPVs are entities sometimes set up ahead of the spinoff or sale of a unit to separate its operations from the parent company.

As part of the plan, the Federal Reserve Bank of New York will receive preferred interests in the SPVs, which will eventually be independent companies once a public offering is completed.

The government rescued New York-based AIG last fall as the credit crisis worsened, giving the insurer $182.5 billion in loans and taking an 80 percent stake in the insurer. AIG, once the world's biggest insurer, was crippled by its financial products business, which underwrote risky credit derivatives contracts.

Under the plan, the Federal Reserve Bank of New York will receive preferred interests worth $16 billion in American International Assurance and $9 billion in American Life Insurance. The preferred interests represent an undisclosed percentage of the estimated market value of the two companies, AIG said. The government stakes will cut AIG's outstanding debt owed on a credit facility with the Federal Reserve Bank of New York to $15 billion from $40 billion.