The University of Virginia's student newspaper, the Cavalier Daily bowed last night to administration demands and accepted the authority of a university board, a decision that will allow the newspaper to return its office on the school grounds.

However, the newspaper's editor-in-chief, Richard Neel, said the Cavalier Daily had reached an agreement with the school that will enable it to become independent of university control no later than Aug. 30.

"I think we won," said Neel last night. "The Cavalier Daily will be the university's student newspaper, but we will be independent and no longer under the (university's media board."

Neel said details of the negotiations for independent status would be worked out over the coming months.

After university officials threatened to close down the paper this week in a dispute over control of the publication, the paper's editors moved off the campus and continued to publish using the facilities of the Charlottesville Daily Progress.

The sudden settlement of the four-day dispute followed a massive noontime rally yesterday. About 1,500 students gathered in front of University President Frank Hereford's office in support of the Cavalier Daily. An effigy of the president was hanged from a tree as the students cheered.

In capitulating to the sdministration's demands, Neel said the paper would not waive its rights to challenger any actions by the school's media board that may violate the paper's First Amendement rights to a free press.

In a letter to Hereford, Neel acknowledged "certain oversight responsibilities" of the university-appointed board, established in 1976 to monitor campus publications and radio stations.

On Tuesday, Hereford evicted the Cavalier Daily and told the newspaper it could no longer use university office space or facilities unless they recognized the board's authority.

Hereford told Neel in a statement released yesterday, "I am very pleased that the issue has been settled. I have always thought that the idea of an independent newspaper had merit."

Neel said the Cavalier Daily would enter into negotiations to purchase the production equipment and to lease the office space, both of which had been provided at no charge by the university.

The board was established by the university's governming Board of Visitors. In defying the media board's authority, Hereford maintained, the 89-year-old student newspaper was defying the board of visitors.

After being evicted, the Cavalier Daily had received support from the American Civil Liberties Union, several Washington lawyers and university graduates from around the country. The rally yesterday, said one student, was "the biggest thing to hit this campus since the Vietnam War demonstrations."