Defense attorneys for former Airlie Foundation director Dr. Murdock Head repeatedly attacked the credibility of key prosecution witness Stephen B. Elko, a former congressional aide, yesterday as Head's retrial on conspiracy charges started in U.S. District Court in Alexandria.

Head is accused of participating in a criminal conspiracy in which he allegedly gave Elko's former employer, former reprsentative Daniel J. Flood, and former representative Otto E. Passman $49,000 through Elko to gain lucrative federal contracts and grants for his tax-exempt Airlie Foundation complex near Warrenton.

Head also is charged with giving an improper gratuity of $1,000 to Flood in August 1974. Elko, who was convicted on bribery and prejury charges by a California federal court in 1977, yesterday described in elaborate detail a system in which Head allegedly handed him envelopes containing up to $8,000 in cash for "Mandrake" and "the Priest," which he sid were nicknames, respectively, for Flood and Passman.

Stating that "the evidence is clear that [Head] never directed fraudulent activities," defense attorny Mark Cummings called Elko "a convicted felon who wormed his way into Head's good graces." Defense lawyer Frank W. Dunham Jr. then said Elko's past testimony before the Ethics and Standards Committee of the House of Representatives differed substantially from his statements yesterday.

Federal prosecutors Theodore S. Greenberg and Joseph A. Fisher embarked on a case substantially similar to the one they argued at Head's first trial in October 1979. Head was convicted then on one count of conspiracy involving tax infractions and received a three-year sentence, but an appeals court overturned the verdict and called for a retrial.

"Head alleged that no one was going to put the pieces of the pie together," Greenburg told a jury yesteday. "But we're going to put the pie together, piece by piece." He was referring to the prosecution's complex case in which Head is accused of an elaborate system of payoffs.

As chairmen of two powerful congressional subcommittees, Democrats Flood and Passman "controlled the pursestrings of the grants that were the lifeblood of Airlie," Greenberg said.

Through Elko and others, the prosecution will attempt to prove that approximately $49,000 in payoffs came from Head to Flood, Passman and Elko between 1971 and 1974.

Elko described a series of visits to Head at Airlie in which Head allegedly produced white envelopes filled with cash, holding them with tissue paper to avoid fingerprints.

Cummings called Head a "creator and a visionary who was on the cutting edge of social issues" and "an ambassador without portfolio" who did not profit by one penny from his Capitol Hill lobbying efforts.