WASHINGTON, July 10 (Reuters) - The U.S. Treasury Department allowed 11 smaller banks to repurchase stock warrants at only 66 percent of their market value, passing up about $10 million of taxpayer profits from government bailouts, a U.S. watchdog panel said on Friday.

In a new monthly report, the Congressional Oversight Panel said the government could lose $2.1 billion if it accepts similar valuation levels on warrants repurchased by remaining banks that received government capital injections.

The panel said the Treasury must apply a vigorous, transparent approach to valuing warrants and should consider leaving valuation to the markets by selling the securities in an open, public auction. (Reporting by David Lawder; Editing by Neil Fullick)