NEW YORK (Reuters) - Bailed-out insurer American International Group Inc said yesterday it paid back nearly $4 billion in US loans in its single largest cash payment so far to reduce its debt to taxpayers.

The partial repayment of a Federal Reserve Bank of New York credit facility came after International Lease Finance Corp, AIG's aircraft leasing unit, sold $4.4 billion in debt to investors and used the bulk of the proceeds to repay $3.9 billion in government loans three years early.

AIG said the repayment will trigger an accelerated amortisation of a prepaid commitment fee asset, resulting in a roughly $650 million pre-tax charge.

Separately, AIG won the dismissal of a $34.4 million judgment in a lawsuit accusing it of fraudulently inducing an AXA SA affiliate to enter two reinsurance contracts.

The Fed credit facility is one piece of a $182.3 billion aid package that AIG received as part of its rescue at the height of the financial crisis.

The Fed also owns $25 billion worth of preferred interest in two of AIG's foreign life insurance units that must be monetised. The US Treasury Department holds another $49 billion more of preferred shares. AIG has not drawn down the entire aid package and does not have to return all the funds committed to its rescue.

The latest payment reduces the size of the Fed credit facility to about $30 billion from $34 billion.

The outstanding principal balance under the facility, excluding fees and interest, is now at just over $15 billion. Interest added up to another $6 billion as of June 30.

At $15 billion, the balance is at its lowest level since the March 2009 restructuring of government aid, a source told Reuters previously.

A previous low of $17 billion was reached in December after AIG gave the Fed preferred interest in two special purpose vehicles created to hold its foreign life insurance businesses.

AIG chief executive Robert Benmosche told Reuters earlier this month about the ILFC plan to raise funds to pay back a loan that AIG had taken since the fourth quarter to prop up ILFC.

"This is continuing tangible evidence of AIG's progress in repaying the American taxpayers," Benmosche said in a statement. "We still have more work to do, but we will finish the job and make sure we repay the American taxpayers."

The repayment also helps ILFC release about $10 billion of collateral pledged to the Fed. The debt that ILFC sold to repay the Fed is divided into four smaller maturities with payments that are now due in later years, ILFC said.

AIG's shares rose 0.3 percent to $35.45 during afternoon trading on the New York Stock Exchange.