A top State Department official said yesterday the controversial air agreement signed last year with the United Kingdom is "not as bad" as it is sometimes portrayed and will not be renounced by the U.S. "as long as it works."

Although many in and outside government have charged that the pact restricts competition in air services between the two nations in violation of long-standing U.S. and current administration policy, Richard N. Cooper, Under Secretary of State for Economic Affairs, said yesterday the agreement "can be made to work" if both nations want it to.

In answer to a question following a luncheon address to the International Aviation Club, Cooper contended that an agreement that appears to be very generous "may get hung up" while an agreement that appears to be less generous can work out well if both sides want it to. He suggested that the desire of both sides to make Bermuda II, as the agreement is called, work may result in a liberal interpretation of its provisions by the British.

Cooper said the administration was committed to negotiation agreements extending and formalizing competition in international aviation, even between U.S. carriers. He noted that the new and revised agreements being negotiated allow carriers to set their won fares without the inter-carrier agreements that have characterized foreign fare history.

"We encourage United States flag carriers to take advantage of the new opportunities," he said. Cooper was suggesting that the airlines are free to bypass the international rate-setting cartel in fixing their fares and the U.S. government will back them up if they do, government officials confirmed yesterday.

Although Cooper yesterday defended Bermuda II, a high transportation official in the Ford Administration said yesterday he thinks that President Carter's instructions to his negotiators for subsequent air talks constitute a repudiation by him of the agreement as anticompetitive.

Noting that the Japanese have been asking for an agreement with provisions similar to the British pact, former Deputy Transportation Secretary John W. Barnum contended that "Bermuda II is an albatross that will be very difficult to unwrap from around our necks."

Barnum said he thinks President Carter was right to pick Braniff Airways for a new route from Dallas to London, but he called into question the procedures used in the White House to arrive at the decision. "How the President got there troubles me greatly," Banum told reporters at the American Enterprise Institute, where he is a visiting fellow.

In a controversial decision in December, President Carter cited "foreign policy" reasons for rejecting the Civil Aeronautics Board's proposal to give Pan American World Airways the new route. But some the charged that politics - namely, the influence of Texas congressmen and Robert Strauss, the President's special trade ambassador - had an impact on the President's decision. It is a charge the White House denies.

If the President in fact weighed all the factors involved and came to a decision favoring Braniff on non-political grounds, he should have stated them clearly and in detail, Barnum said.

He also should have followed the provisions of a June, 1976 executive order of former President Ford that was designed to eliminate the aura of politics and lobbying that had permeated international air decisions for years, Barnum contended.

[The order prohibits individuals within the executive office of the President from discussing pending cases with "interested private parties." White House sources contend this does not apply to elected officials - congressmen and others - who made their views known.]

Nevertheless, Barnum suggested that the air agreement with the British makes Braniff a logical choice for the disputed route. Because of limitations on the ability of American carriers to fly beyond London and capacity restrictions.

Barnum said the ability to collect passengers beyong each city will play a major role in determining whether the U.S. or British carrier gets a major share of the air traffic between cities. Braniff's extensive network beyond Dallas makes it a better choice than Pan Am, he said.

The failure to eliminate the appearance to politics in the route decision jeopardizes the President's authority to review the board's foreign air decisions, a prerogative Barnum thinks the President ought to have, he said. He noted that some congressmen have raised questions about that authority.

In related news:

The CAB sent the president a revised decision complying with his wishes. The board also denied petitions from Pan Am to resubmit the board's original decision to him and to delay the effectiveness of the new route awards.

Sources said James Atwood, an attorney with Covington and Burling, will become a Deputy Assistant Secretary of State for Transportation with responsibilities in aviation and maritime policy.