The department said it intends "to fully dispose" of its roughly 7.7 billion shares in Citigroup "over the course of 2010 subject to market conditions".
The US government owns 27 per cent of the firm and shares worth around 32 billion dollars at Monday's market rates.
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The announcement comes as Washington tries to claw back the 700-billion-dollars of tax payers' money used to prevent the collapse of the global financial system in 2008.
At the depths of the crisis the government injected a total of 45 billion dollars into Citi, once the world's biggest banking group.
Low market value
The New York-based company faced massive losses in the wake of the mortgage crisis and came perilously close to seeing a run on its deposits as confidence in the system collapsed.
Despite repaying some 20 billion dollars to the authorities in December, Citi is still one of the last of the major banks operating in the shadow of a US government bailout.
"This is the next stage of us moving to make sure we are getting out of the financial system as quickly as we can," Treasury Secretary Timothy Geithner told CNBC on Monday.
"We don't want to be in the business of owning a share in a private company a day longer than necessary."
The government had held off selling its share stake in the firm until now, no-doubt dissuaded by its low market value.
Price rising steadily
The beleaguered global bank's full year loss in 2009 was 1.6 billion dollars, although that was much lower than the hefty 27.6-billion-dollar loss suffered in 2008.
But Citi's share price has been rising steadily in recent months as Chief executive Vikram Pandit has embarked on sweeping reforms designed to prop-up the firm's balance sheet and slash costs.
Pandit efforts to reduce the company size and staff, refocus business strategy and overhaul risk management has cut costs by over 13 billion dollars annually.
The government now stands to net an eight-billion-dollar profit from selling its shares, if current prices hold up.
But amid continued market jitters, the Treasury said its sell-off would be gradual. A quick unloading of the stock could flood the market, diluting the value of the firm.
High trading volumes
"Treasury intends to sell its Citigroup common shares into the market through various means in an orderly and measured fashion," a Treasury statement said.
But analysts said the large volume of Citi stocks bought and sold each day should help the government offload its stake.
"With average daily trading volume of more than 500 million shares, we think the government could divest its stake without undue pressure on the share price," said Standard & Poor's Matthew Albrecht.
But the news prompted shares in the banking giant to sink. Citi's share price was down three percent to 4.18 dollars a share at the close of trading Monday.
The Treasury also owns billions of dollars worth of Citi trust-preferred securities and warrants -- financial instruments allowing holders to buy stock in the future at a fixed price.
Those holdings were not included in Monday's announcement.
