A semiconductor device has a semiconductor die and encapsulant deposited over the semiconductor die. An insulating layer is formed over the semiconductor die and encapsulant. A first channel including a first conductive surface is formed in the insulating layer by laser radiation. A laser-activated catalyst is infused in the insulating layer to form the first conductive surface in the first channel upon laser radiation. A vertical interconnect is formed through the encapsulant. A first conductive layer is formed in the first channel over the first conductive surface. A second channel including a second conductive surface is formed in the encapsulant by laser radiation. The catalyst is infused in the encapsulant to form the second conductive surface in the second channel upon laser radiation. A second conductive layer is formed in the second channel over the second conductive surface. An interconnect structure is formed over the first conductive layer.