* Liberty Media cuts stake to 1.6 percent from 16.6 percent
* Barnes & Noble shares fall as much as 10.7 percent
* Liberty Media CEO Greg Maffei to leave Barnes & Noble board
(Adds details, updates share price)
April 3 (Reuters) - John Malone's Liberty Media Corp is slashing its stake in Barnes & Noble Inc by 90 percent, three years after it invested $204 million in the struggling U.S. bookstore chain and its then promising e-reader, the Nook.
Barnes & Noble shares fell as much as 10.7 percent after Liberty is selling down its holding to around 1.66 percent from its previous 16.6 percent, bought in 2011 through an investment in preferred stock. (http://r.reuters.com/med36t)
Liberty said it was selling a majority of its holding to institutional investors. It did not name the buyers or how much money it received from the sale.
At the time of the 2011 investment, Liberty Media was in talks to buy Barnes & Noble for $1 billion, to tap into the growing e-reader business through the Nook.
But that plan fell apart as the two company's struggled to put a value on the Nook, which faced intense competition from Amazon Inc's Kindle and Apple Inc's iPad.
Losses from the Nook have since run to hundreds of millions of dollars and Barnes & Noble has scaled back production.
Liberty Chief Executive Gregory Maffei is to leave the Barnes & Noble board but his company's senior vice president, Mark Carleton, will stay on, the two companies said in a statement.
"By reducing our preferred position and eliminating some of our related rights, Barnes & Noble will gain greater flexibility to accomplish their strategic objectives," Maffei said.
Barnes & Noble shares fell as low as $19.75 on the New York Stock Exchange before recovering a little to $19.81.
Liberty stock was flat at $133.27 on the Nasdaq.
(Reporting by Siddharth Cavale in Bangalore; Editing by Rodney Joyce)