The Consumer Product Safety Commission is about to decide a super-heated issue: whether to ban insulation made with formaldehyde.

By all accounts, the vote is expected to be close when the commission takes up the controversial question on Feb. 8.

For one thing, since it was first proposed by a 3 to 2 vote a year ago, the proposal became the object of intense lobbying by the industry, with a national association of installers accusing the CPSC staff of misleading the agency in its conclusion that insulation made with formaldehyde is a severe health risk.

Then, too, one of those voting for the ban, former chairwoman Susan King, has since left the commission. Her replacement, Nancy Harvey Steorts, has said she wants to avoid confrontations with industry groups, leading industry and agency sources to predict she will vote against the prohibition. The sources add that at least one of the two who opposed the ban earlier -- Sam Zagoria and Stuart M. Statler -- now appears to be wavering.

As a result, the industry in the last few weeks has stepped up its pressure to try to persuade the agency to reject the proposed ban. The formaldehyde manufacturers, for example, presented an unusual 11th-hour industry briefing to the commission Friday in one last attempt to persuade the members against a ban. In the meantime, the nation's installers are trying to arouse congressional interest by sending telegrams to Capitol Hill charging wrongdoing by the commission staff.

With the vote only eight days away, the heat is certain to rise even more.

At issue is urea-formaldehyde foam insulation, or UF-foam as it is more commonly known in the industry. Resembling shaving cream, the insulation is pumped into spaces between house walls, where it hardens to form a layer of insulation.

According to the industry, this type of insulation has been installed in more than 500,000 homes across the country.

Since insulation became popular in the mid-'70s as a result of the energy crisis, the CPSC has received 2,200 complaints, involving some 5,700 people, about UF-foam.

For the most part, complaints from homeowners who have installed the foam center on adverse health effects. Often formaldehyde gas is released, causing headaches, eye irritations, rashes, respiratory problems, severe nose bleeds, nausea and vomiting.

After receiving hundreds of complaints, the CPSC launched an inquiry in August 1979. It found that the release of formaldehyde gas posed not only some immediate discomfort to many consumers, but also a potential cancer threat.

Newly completed studies in which animals developed cancerous tumors after being exposed to large doses of formaldehyde persuaded the staff that UF-foam should be banned. In a study conducted by the Chemical Industry Institute for Toxicology in North Carolina, 240 rats were exposed to large doses of the chemical for six hours a day, five days a week over a period of 18 months. One year after the test began, three rats developed cancerous tumors in the nose; after two years, 95 rats had tumors. Additionally, even at medium-low doses of formaldehyde, three rats had tumors.

Another test conducted by New York University had nearly the same results, leading a working group at the International Agency for Cancer Research to conclude recently in a draft working paper: "Formaldehyde gas should be considered for practical purposes as if it represented a carcinogenic risk to man."

As a result of these and other studies, the Canadian government barred the sale of UF-foam in December 1980. Massachusetts banned the product in 1979, and Connecticut last year.

But two weeks ago, a state judge overturned the Massachusetts ban, ruling it had been imposed without a fair hearing and without sufficient evidence that UF-foam was a severe health hazard.

"We've been vindicated by that decision," says James Ramey, chairman of the Formaldehyde Institute, which represents more than 70 companies and trade associations involved in the manufacture and use of formaldehyde and formaldehyde-based products.

Ramey is hopeful that that decision will persuade the CPSC to veto its staff recommendation. "It proves that the commission doesn't have the data on which to base a ban," argues Ramey.

Ramey and other industry officials contend there is no proof that formaldehyde causes cancer in humans. Two studies of workers who have been exposed to significant amounts of formaldehyde have so far failed to show any link between the chemical and an increase in cancer, the industry argues. What's more, it says, in the animal tests no rats or mice developed tumors at lowest exposure levels.

Additionally, the industry says the CPSC has failed to prove that there is more formaldehyde gas released in homes with UF-foam than in homes without. Present in a wide variety of home products, such as particleboard, plywood, rugs, draperies, as well as an offshoot of natural gas and tobacco combustion, formaldehyde is found throughout the atmosphere.

In homes without UF-foam, the commission staff found formaldehyde levels to average 0.03 parts per million. In homes with UF-foam, the staff found the average level of 0.1 parts per million. There isn't "any person around who would put any significance on that kind of difference," says Ramey.

Ever since it became apparent that the CPSC might ban UF-foam, the industry has been urging the commission instead to adopt a safety standard that would make sure the product is installed properly. If accurately installed, formaldehyde gas should not be released, the industry contends.

But the CPSC staff has opposed such a standard -- even though the law requires that wherever possible the commission adopt a standard rather than a ban -- saying the industry's proposed standard does not guarantee that formaldehyde will not be released.

The substance of the arguments has been overshadowed, however, in the past two weeks as the nation's installers have mounted a vigorous attack on the CPSC staff, accusing it of prejudging the issue, withholding the evidence and misleading the commissioners with only half-truths.

"The staff of the CPSC has aggressively and publicly sought to promote a ban on the sale of UF-foam and, in the pursuit of its objective, has knowingly provided its commissioners false or misleading data, utilized de facto regulation against the UF-foam industry, and knowingly submitted false or misleading data to the Congress . . . to support its position," says a 100-page report by the National Insulation Certification Institute.

Additionally, charges the group's executive director, Josh R. Lanier, the CPSC made those charges without involving the staff's medical doctor. "They're making a loud assumption of medical science rather than fact," claims Lanier.

In the process, he adds, the CPSC has "completely destroyed one industry" by publicizing its views. In 1977 there were 32 manufacturers of the insulation and nearly 1,500 installers. Now there is only a handful of manufacturers and 200 installers.

The commission, initally stunned by the accusations, has begun to fight back. After a preliminary investigation, acting director Kirk Harper said "there is no way the staff withheld information." As far as misleading the commissioners, he adds, "a preliminary look doesn't lead us to that conclusion. Different scientists look at the same data and come to different conclusions." Noting that the commissioners have both the staff and industry interpretations before them, he adds, "the commissioners are perfectly capable of comparing data."

Commissioner Zagoria adds, "We've probably had more input with the industry than in any other issue we have dealt with. They have had ample opportunity to make their case and challenge any statement they felt incorrect through public hearings and filings to the proposal."

If the industry fails to get the commission to back off a ban, the next stop will be Congress, Lanier promises. Under a new law, Congress can veto a CPSC action if one house adopts a resolution of disapproval and another house does not vote against that resolution.

"It's going to be an all-out effort to make this agency the first one to be vetoed in the U.S.," says Lanier.