Virginia authorities have allowed the chief psychiatrist at the State Pentitentiary to remain in his $72,358-a-year job despite his conviction last year on federal charges of using false data in experimental drug tests.

Dr. Fred C. Dalton was suspended from practicing medicine in Virginia for four months by the State Board of Medicine when it learned of his guilty plea to two misdemeanor charges initiated by the Food and Drug Administration. The state board then was investigating a separate allegation that Dalton falsified a drug prescription for his own use at a Petersburg pharmacy in July 1981.

The board, which regulates physicians, restored Dalton's license after a hearing and on March 7 placed him on "indefinite probation," with the added condition that he be barred from prescribing narcotic drugs anywhere except inside the Virginia prison system.

Wayne Farrar, spokesman for the state Corrections Department, said prison officials are satisfied with the board's action and with Dalton's qualifications.

Dalton said in an interview that he had told prison officials of the federal charges when he became the Richmond penitentiary's first full-time psychiatrist in October 1981.

The 60-year-old physician said, however, that he hadn't notified the state medical board of his subsequent conviction in New York because his lawyer told him that a conviction in one state would have "nothing to do with licensure" in another. He also said he had been led to believe that the case would be sealed from the public.

"I was hoping it would be," he said. "I knew if the newspapers got hold of it, it would be hot stuff."

The medical board's March 7 decision has aroused concern among various advocacy groups in Virginia, who say it suggests a double standard for prisoners.

"The board of medicine seems to be saying that if you can't trust a physician to treat real people, it's still okay for him to treat prisoners," said Bud Levin, chairman of the governmental affairs committee of the state Association for Retarded Citizens.

Dr. Edwin Kendig, president of the 14-member state Board of Medicine, said the board has put doctors on supervised probation in other cases. "In an institution, they can't actually dispense drugs ," said Kendig. "There is no possible way they can do anything. There are all sorts of controls within an institution . It isn't like it is on the street."

During the period of Dalton's four-month suspension -- from December 1982 to March 1983 -- he was assigned to the prison system's central office and was not involved in the treatment of patients.

Dalton said that the test results that led to his federal conviction, submitted during the course of a 1977 study on an experimental antidepressant drug, were "acceptable . . . based on my clinical judgment". His prosecution was "a situation where I was being made into a kind of a scapegoat," he said.

Dalton speculated that the board restricted his ability to prescribe drugs to the state prisons because, he said, "my services are needed here. Corrections officials wanted me to continue and they made that clear to the board." Since he has no private practice, Dalton said that the terms of his probation "present no hardship."

An attorney for the American Civil Liberties Union's National Prison Project, now challenging conditions at the penitentiary in Richmond, said she wasn't aware of Dalton's probationary status, or the federal conviction, when Dalton testified earlier this month for the state on the adequacy of psychiatric care at the prison.

"Unfortunately, we did not know at the time," said ACLU attorney Adjoa Aiyetoro, who described psychiatric care as a significant issue in the lawsuit. "Yes, we would have used it," she said, adding she believed the disclosure would have undercut Dalton's testimony.

Dalton, a 1947 graduate of Wayne State University Medical School in Detroit, was a private psychiatrist in Mineola, N.Y., until he came to Virginia in 1979. He went to work first at Western State Hospital and then in 1980, transferred to Central State Hospital in Petersburg.

On June 22, 1982, Dalton was fined $1,000 after pleading guilty in U.S. District Court in New York to two misdeamenor charges of creating "inaccurate, false, fictitious and fraudulent results" in the course of research on dothiepin-hydrochloride, an antidepressent drug needing FDA approval to be marketed.

According to the FDA, those test results were questioned some time in 1978 by the sponsor, Marion Labroratories of Kansas City. After an initial investigation, the FDA disqualified Dalton on Jan. 3, 1979, from further work on all investigation of drugs.

In May 1980, the FDA recommended criminal prosecution of Dalton on 12 felony counts of falsifying test results. The FDA alleged in the report that Dalton produced results of tests that were never administered to four different patients involved in the study. In one case, the FDA claimed the patient reported that the ophthamological, cardialogical and blood and urine tests were never done at all; in other cases, only one test allegedly was performed when Dalton claimed there had been two.

Dalton said his problems first began when he refused to turn over earlier records on his patients, which he said would have violated their right to confidentiality. He said some of the missing tests cited by the FDA had been done before the study began, or had been done by him, not by the other specialists involved in the study.

Over the objections of the FDA, the U.S. Attorney's office in Brooklyn pressed only two misdemeanor charges against Dalton. He pleaded guilty and was fined $1,000. "We objected to this right up to the end. These cases, as far as I am concerned, were all serious," said George Gerstenberg, FDA district director.

Dalton's federal conviction only came to the attention of the State Board of Medicine after it began investigating a report that Dalton falsified a prescription for 100 tablets of Empirin 4, a commonly used pain killer, during the July Fourth weekend in 1981.

Dalton said the prescription, listing a doctor at Central State Hospital as the patient, was "an isolated error in judgment, done in an emergency situation" under the mistaken impression that Virginia law prohibits doctors from writing themselves prescriptions. Dalton said he had been unable to contact his own doctor that weekend and the drugs were for his own use.

Dalton said he and the doctor named on the prescription reported the case to authorities, but it was months before the state board began its investigation. It was then, said Dalton, "that the other matter came to light."