A semiconductor device has a first thermally conductive layer formed over a first surface of a semiconductor die. A second surface of the semiconductor die is mounted to a sacrificial carrier. An encapsulant is deposited over the first thermally conductive layer and sacrificial carrier. The encapsulant is planarized to expose the first thermally conductive layer. A first insulating layer is formed over the second surface of the semiconductor die and a first surface of the encapsulant. A portion of the first insulating layer over the second surface of the semiconductor die is removed. A second thermally conductive layer is formed over the second surface of the semiconductor die within the removed portion of the first insulating layer. An electrically conductive layer is formed within the insulating layer around the second thermally conductive layer. A heat sink can be mounted over the first thermally conductive layer.