Morgan Stanley & Co., the New York investment banking firm, said yesterday it has organized a group of 25 investors led by CSX Corp. that is offering $1.2 billion in cash and other benefits for the federal government's 85 percent stake in Conrail. As part of the plan, the investor group would resell a majority of its shares to the public within five years.

If Morgan Stanley's plan were to win congressional approval, Conrail's current managment would continue to control the railroad and the Transportation Department's plan to sell Conrail to Norfolk Southern Corp. for $1.2 billion would be defeated. Conrail Chairman L. Stanley Crane said he supports the Morgan Stanley proposal because "a stand-alone Conrail avoids anticompetitive problems, will result in the greatest number of jobs for railroad employes . . . and will maximize the net financial return to the federal government."

Under Morgan Stanley's proposal, the federal government also would receive warrants (rights) to purchase one million shares of Conrail stock at about $48 a share, a feature not included in the Norfolk Southern proposal. Morgan Stanley officials said yesterday that the government also would collect $600 million more in taxes under its proposal, because the investor group would not use certain Conrail tax benefits available to Norfolk Southern.

CSX, the biggest investor in the Morgan Stanley group, has agreed to invest as much as 25 percent of the total, or $300 million, or as little as 10 percent, or $120 million, sources said. The railroad wants to be a major participant not only to block the Norfolk Southern acquisition of Conrail, but also because it views the deal as an attractive short-term investment, sources said.

Morgan Stanley Managing Director Thomas A. Saunders III said the investors would try to sell a majority of their shares to the public as soon as possible. He said some investors are participating because they hope to resell their shares to the public for a significant profit in less than one year, perhaps for as much as $55 a share.

The investor group includes Morgan Stanley, Citicorp Capital Investors Ltd., Nynex Corp., The Taubman Investment Co. (owner of Woodward & Lothrop), United States Steel and Carnegie Pension Fund Inc., Rockefeller & Co. Inc., T. Rowe Price Associates Inc., three Ivy League university endowments (Harvard, Princeton and Columbia), Nomura Securities International Inc., and two Switzerland-based investors.

The Transportation Department continued to support the administration's plan to sell Conrail to Norfolk Southern.

"I believe we have chosen the best future course for Conrail, its employes and shippers," said Transportation Department Secretary Elizabeth Hanford Dole. "Through a merger with Norfolk Southern, Conrail's future as a viable northeastern railroad is guaranteed. The proposal announced by Morgan Stanley is not fundamentally different from some we reviewed in the past. To the extent it will be helpful to Congress, we will respond to questions about the new proposal and our deliberations on simliar purchase plans considered last year."

"The Morgan Stanley plan will receive the same intense scrutiny that we are giving to the Norfolk Southern offer," said Rep. John D. Dingell (D-Mich.), chairman of House Energy and Commerce Committee. "Only by the most intensive and open examination of all the facts can the committee and the Congress determine the most desirable public policy. I will take no position until I am convinced that this thorough review is complete."

Morgan Stanley refused to disclose how much each of the investors has agreed to commit, saying that it would be inappropriate because investors still are being added. Morgan Stanley's Saunders said that, after five years, no member of the investor group would own more than 10 percent of the company and the entire group would reduce its stake to a maximum of 40 percent.

The Morgan Stanley plan would pay Conrail employes about $440 million, or $48 a share, for their 15 percent stake in the railroad, but it would give them the option to keep their stock.