UPDATE 2-Five firms seen vying for AIG Japan units-sources

* Prudential Financial, Manulife Financial in contention

* Decision expected by year-end (Adds AIG not having immediate comment, background on units, sales process)

TOKYO, Dec 9 (Reuters) - Prudential Financial Inc (PRU.N), Manulife Financial Corp (MFC.TO) and three other companies are expected to make bids for two Japanese life insurers put up for sale by American International Group Inc (AIG.N), people familiar with the matter said on Tuesday.

Prudential unit Gibraltar Life Insurance Co and Manulife will bid for AIG Edison Life Insurance Co and AIG Star Life Insurance Co. The remaining three bidders are a Japanese insurance company and two non-Japanese firms, the sources said.

The original deadline for the bidding was Dec. 5; it was later delayed until Tuesday.

The sources said the bidding process could close later this week, and AIG is expected to select a buyer by the end of the year.

Saved from bankruptcy by a U.S. government bailout that has ballooned to $152 billion, AIG is looking to raise cash by shedding assets.

Representatives at Prudential and Manulife in Tokyo declined to comment. AIG did not immediately have a comment on the sales.

AIG had planned to merge these two units early next year but instead will sell them. The government bailout requires it to shed units to repay federal debt.

AIG Edison ranks No.22 in the Japanese insurance industry. AIG bought the business from General Electric Co (GE.N) in 2003. AIG Star ranks No.23.

Gibraltar Life -- which ranks No.14 -- will become the sixth-largest insurer in the country if its bid succeeds. Manulife, No.11, would become the fifth-largest.

The country's top life insurer is Nippon Life Insurance Co, followed by Dai-Ichi Mutual Life Insurance Co.

AIG has hired JPMorgan Chase & Co (JPM.N), Goldman Sachs (GS.N) and Blackstone Group (BX.N) to advise it globally on asset sales.

Other businesses that AIG plans to sell include American Life Insurance Co, or Alico, which has operations in 55 countries, including Japan.

A China Investment Corp-led consortium, which includes Chinese insurance companies, was in talks to buy a 49 percent stake in Alico, Japan's Nikkei business daily reported last month.

AIG plans to retain a majority interest in another life insurance business, American International Assurance Co Ltd, or AIA, a well-known brand across Asia.

AIG, once the world's biggest insurer by market value, averted bankruptcy in September with an $85 billion federal bailout. The rescue swelled to $152 billion when it became clear the lower amount would not be enough.

AIG has said it plans to sell everything except its U.S. property and casualty business, foreign general insurance, and an ownership interest in some foreign life operations. (Reporting by Taro Fuse, Emi Emoto and Chikafumi Hodo; Additional reporting by Lilla Zuill in New York; Editing by David Cowell and John Wallace)