A semiconductor device has a first interconnect structure formed over a first side of a substrate. A semiconductor die is mounted to the first interconnect structure. An encapsulant is deposited over the semiconductor die and first interconnect structure for structural support. A portion of a second side of the substrate, opposite the first side of the substrate, is removed to reduce its thickness. The encapsulant maintains substrate robustness during thinning process. A TSV is formed through the second side of the substrate to the first interconnect structure. A second interconnect structure is formed in the TSV. The TSV has a first insulating layer formed over the second side of the substrate and first conductive layer formed over the first insulating layer and into the TSV. The second interconnect structure has a second conductive layer formed over the first conductive layer in an area away from the TSV.