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UPDATE 1-SolarCity to pay $29.5 mln to resolve U.S. government allegations

(Adds details about the settlement, background, Tesla share price, and comments from the company and DOJ)

WASHINGTON, Sept 22 (Reuters) - SolarCity will pay $29.5 million to settle a long-running investigation into allegations it violated federal law by submitting inflated claims to the government through a popular stimulus program set up during the Obama administration, the U.S. Justice Department said Friday.

The department said there was no determination of liability as part of the settlement with SolarCity, now owned by Tesla Inc , and that the company would also drop related litigation against the government.

The probe centered on whether SolarCity and other companies were making misrepresentations about the fair market value of solar systems that received grants.

In a statement, the company denied all of the allegations in the civil settlement with the Justice Department.

"Between 2009 and 2013, SolarCity installed approximately 29,000 solar energy systems that were eligible for cash grants," the company said.

"SolarCity took its responsibilities under the program very seriously, and far from trying to overstate the value of those projects, it went to great lengths to determine accurate values. Independent appraisers, accountants, and investors gave those projects a total value of approximately $1.8 billion."

The U.S. Treasury Department's Inspector General has been probing the company since at least 2012 in connection with the stimulus program, which allowed rooftop solar panel projects to turn tax credits into cash grants as a way to help subsidize costs.

The program paid a cash grant that was equal to 30 percent of the eligible cost basis to construct or acquire certain solar energy systems. The program has since expired.

According to the Justice Department, SolarCity is alleged to have made thousands of claims starting in 2009 that allegedly overstated the costs.

"The government will still hold accountable those who sought to take improper advantage of government programs at the expense of American taxpayers," said Chad Readler, the acting head of the department's civil division.

Throughout the years-long Treasury investigation into SolarCity, the company in turn counter-sued the government, claiming the government actually owed it money for solar systems it had installed that qualified for grants.

As part of the settlement, SolarCity has agreed to drop its counterclaims against the U.S. Treasury Department.

"It is telling that after an exhaustive five-year investigation, the government did not bring any lawsuit accusing SolarCity of any wrongdoing," the company said in its statement.

Tesla shares were down about 2 percent in morning trading in New York. (Reporting by Susan Heavey, Sarah N. Lynch and Joe White in Detroit; Editing by Bernadette Baum)