The sale, Treasury's biggest sell-down of its AIG stake so far, comes as President Barack Obama campaigns for a second term and has been forced to defend his support of decisions to use taxpayer money to prop up companies during the financial crisis.

AIG has indicated that it intends to purchase up to $5 billion of the stock being sold by the US Treasury at the initial public offering price, both said in statements on Sunday.

The US Treasury became a major shareholder of AIG as a result of government bailouts of the company in the financial crisis in 2008. AIG had suffered large losses on complex contracts tied to debt securities.

If the Treasury were to sell $18 billion at AIG's Friday closing price of $33.99 per share, it would be selling roughly 529 million AIG outstanding shares and would cut the government's stake in the insurer to just over 20 percent.

Treasury said it will also grant to the underwriters in this offering a 30-day option to purchase up to an additional $2.7 billion in its common stock to cover any over-allotments.

The announcement on Sunday comes just a month after the Treasury sold 188.5 million AIG shares for $5.75 billion in a public offering. The sale was priced at $30.50 per share -- above the $28.72 price needed for the US government to break even on its investment in the insurer.

If the sale goes forward at the current stock price, it could be an opportunity for the government to show that it made a profit on the bailout.

The government has already sold several tranches in AIG above the break even price, putting Treasury on track to make a profit when it exits the insurer. Treasury has said it will not sell below the break even level.

The Obama administration has been unwinding its position in the politically unpopular financial crisis bailout programs, with more than 300 small banks having yet to repay taxpayers.

The administration could sell its remaining stake in AIG this year but has been adamant in saying it will not act for political reasons.