Shares of AIG were up around 3 percent.
In an open letter to AIG CEO Peter Hancock, Icahn said the company was still loo large despite years of dismantling.
"The company continues to severely underperform its peers and is now facing an increasingly onerous regulatory burden which will only further erode its competitive position," he said.
"Despite definitive action on the part of Congress and regulators to encourage this company to become smaller and simpler by splitting up, you have shown no sign of urgency and have chosen a "wait and see … for years" strategy void of decisive leadership. As a result AIG consistently trades at a substantial discount to book value. It is a "no-brainer" that the simple act of splitting this company up will greatly enhance shareholder value."
Icahn said AIG should immediately separate its life and mortgage insurance subsidiaries to create three independent public companies. He also called for a "much needed cost control program to close the gap with peers."
In response to the letter, Hancock said the company was taking steps to "reposition."
"AIG maintains an open dialogue with all our shareholders and welcomes their feedback and ideas," he said. "We have taken important and significant steps to reposition AIG by both simplifying and de-risking the company, and realizing attractive valuations from non-core asset sales. We remain on course and are determined to continue and accelerate these efforts. We look forward to sharing our progress and strategies at our regularly scheduled earnings call on Tuesday."
The company is scheduled to report quarterly results on Monday after the market close.
AIG is one of the largest insurance companies in the country.