A semiconductor device has a semiconductor die and an encapsulant deposited over the semiconductor die. A first insulating layer is formed over a first surface of the encapsulant and an active surface of the semiconductor die. A second insulating layer is formed over a second surface of the encapsulant opposite the first surface. A conductive layer is formed over the first insulating layer. The conductive layer includes a line-pitch or line-spacing of less than 5 μm. The active surface of the semiconductor die is recessed within the encapsulant. A third insulating layer is formed over the semiconductor die including a surface of the third insulating layer coplanar with a surface of the encapsulant. The second insulating layer is formed prior to forming the conductive layer. A trench is formed in the first insulating layer. The conductive layer is formed within the trench.