A Circuit Court judge set aside yesterday his finding that James P. Moran Jr., Alexandria's mayor-elect, was guilty of violating Virginia's conflict-of-interest law, saying that "Alexandria deserves a mayor now that is not under a cloud."

Arthur W. Sinclair, a retired Prince William County circuit judge who found Moran guilty a year ago, said after reviewing a report on Moran's 12-month probation that "he has paid for his difficulty with the law."

Moran, a 39-year-old stockbroker who was elected mayor last month and will take office July 1, was a member of the City Council when he entered a plea of no contest before Sinclair on June 12, 1984. The offense carries a penalty of up to a year in jail and a $1,000 fine.

The judge deferred sentencing in the case after finding that Moran had improperly cast a council vote on a parking lot matter that involved a personal business partner. As part of a plea bargain agreement, Moran resigned from the council.

Sinclair stopped short yesterday of expunging Moran's case from court records.

That prompted Helen Fahey, the Arlington deputy commonwealth's attorney who served as special prosecutor, to remark: "The facts remain the same . . . he admitted to the charge." She said the record of the proceedings against Moran will always be on file, although the newly elected mayor will no longer have a formal conviction.

Fahey added that she hoped the dismissal would not send the public a message that Moran's legal violation was a "light matter," a point Moran's attorney, Wilery R. Wright Jr., reiterated.

"He knows how serious this is," Wright told the judge. "He was absolutely devastated by it."

Moran, a Democrat who won the mayor's office running as an independent, said after the court proceedings: "As painful and bitter an experience as it was, it was equally valuable. It made me far more cognizant of what it means to hold public office."

City Council member Donald C. Casey, a Democrat who is an old political antagonist of Moran, said he was not pleased with the judge's decision to dismiss the charge.

"Without question, [Moran] got preferential treatment," said Casey, who pressed for Moran's conviction last year. Casey, who will not be serving on the City Council with Moran because he was defeated in the May 7 election, compared the dismissal of the charge against the mayor-elect to the pardon given former President Richard M. Nixon. "The difference is that Nixon resigned without the ability to come back," he said.