The Justice Department has begun negotiations with the distributors of all-terrain vehicles (ATVs) over demands by the Consumer Product Safety Commission that the vehicles be recalled as unsafe and their makers be required to give refunds to purchasers.

The three-member commission voted Dec. 12 to refer the case to Justice but the department has not announced whether it is willing to sue the ATV makers and distributors on behalf of the agency.

A recall of the small three- and four-wheeled vehicles, described by government officials as an "imminent hazard," would be the most costly action ever taken by the consumer agency. Estimates have placed the price of the recall at near $2 billion and some officials have said the recall could devastate the industry.

Disclosure of the negotiations -- as well as the fact that the CPSC recently voted in a closed session to allow them -- came Thursday during a House hearing where Democratic and Republican lawmakers attacked the commission over delays in the case, described by Rep. James J. Florio (D-N.J.) as a "classic" of bureaucratic inaction.

The vehicles, designed primarily for off-the-road recreational use and said to be highly unstable, have been blamed for the deaths of more than 700 people and 298,000 serious injuries since 1980. Spokesman for the industry have rejected the agency's safety claims and have refused to go along with the voluntary steps the agency has requested.

Industry spokesmen were not available for comment yesterday, but CPSC General Counsel James V. Lacy, who disclosed the negotiations in testimony before Florio's consumer protection subcommittee, said in an interview that the talks should "not imply any impropriety" or signal that Justice believes the case against the vehicles is weak.

Another commission official, who asked not to be named, said that Justice lawyers had voiced concerns about the case, citing the department's recent failure to force a recall of the General Motors Corp. X-cars, which the National Highway Traffic Safety Administration had labeled unsafe. A U.S. district court judge said the agency had not proved the 1980-model cars were any more dangerous than other cars.

Made mostly in Japan, the motorcycle-like ATVs were introduced to the United States in the early 1980s and their sales grew rapidly. By 1984 they accounted for half of total motorcycle sales, according to the CPSC. But injuries were said to be rising almost as fast, and the machines were proving especially dangerous for children who were said to have difficulty controlling the vehicles with their wide, low-pressure tires and powerful engines.

The negotiations began at the requests of representatives of American firms that import the vehicles, Lacy said. They made their request at a May 20 meeting with lawyers from Justice and the commission. The commission held two subsequent meetings to discuss the issue with Justice representatives, on May 27 and on Tuesday.

Lacy declined to describe what points the industry wished to discuss, saying only that "the whole content of the case" was under consideration. He noted that, while the three-member commission split over the question of whether to demand refunds for all purchasers of the estimated 2.7 million ATVs sold, the three were united in many aspects of the case.

Commission Chairman Terrence M. Scanlon said he broke with Anne Graham and Carol Dawson over the refund demand. A copy of Scanlon's comments at the Dec. 12 meeting show that he favored "a refund program" for any adult-sized ATV purchased for a child under 16 and a refund program for all owners of three-wheeled vehicles, described as the most dangerous of the models.

Scanlon, a conservative who has been accused by members of Congress of attempting to subvert the recall effort, said he wanted the refunds to be voluntary, allowing consumers to decide whether to ask for their money back.

Lacy revealed the negotiations as Rep. Dennis E. Eckart (D-Ohio) produced a memo from Graham accusing Scanlon of reassigning two of the agency's most experienced lawyers from the ATV case. Lacy, a Scanlon appointee, said he wanted lawyers more experienced with negotiations to handle the dispute.

In the interview Lacy said the agency has pressed other "voluntary" steps aimed at reducing ATV hazards, actions that were attacked during the hearing as coming too late and being too weak.

Among the voluntary steps that the industry has declined to take are requests for an end to appeals to children, warning labels and minimum age requirements. The agency has appealed to the states to consider licensing, helmet requirements and other restrictions on their use.