ANNAPOLIS, JULY 9 -- Local environmentalists agreed today to drop a year-old lawsuit against the State Highway Administration after the agency announced initiatives to protect sensitive waterways from pollution caused by road construction.

In their suit, Maryland Save Our Streams, Weems Creek Conservancy and Annapolis resident Vincent J. Cushing had contended that the Highway Administration imperiled the health of two Chesapeake Bay tributaries by failing to observe state sediment-control laws on three major Anne Arundel highway projects, including the widening of Route 50 through Annapolis.

Under an out-of-court settlement signed today, the Highway Administration admitted no wrongdoing but agreed to give the Anne Arundel County Soil Conservation District a role in reviewing the state's erosion-control plans and to assign inspectors from the state Department of the Environment to monitor the local projects.

As part of the agreement, the Highway Administration said it will comply with the recommendations of a task force the governor has appointed to come up with plans for restoring Weems Creek, which runs along Route 50 west of Rowe Boulevard. Environmentalists say that the removal of trees and the plowing of the banks of the creek have caused heavy siltation that makes the waterway shallower and threatens wildlife and aquatic vegetation.

Although the suit was prompted by the condition of local waterways, Highway Administrator Hal Kassoff said his agency's new anti-pollution policies will be applied statewide. Among them is a plan to discipline building contractors based on their "grades" for compliance with sediment-control standards.

Contractors receive such grades now, but under the new policy, those who receive a certain number of C's will be ordered to stop work until corrections are made, Kassoff said. A contractor given a D will be fined $1,000 a day, and one given an F will be fined $2,000 a day, he said.

In addition, the agency has adopted extra tough sediment-control policies for exceptionally sensitive areas, such as Weems Creek. When dirt is moved in those areas, contractors will be required to stabilize the soil within 72 hours, not 14 days.

"We try to avoid litigation where we can. But if the outcome can be this positive, maybe we should have litigation more often," Kassoff said.

Elizabeth McWethy of Weems Creek Conservancy commented, "In the beginning, I think {Kassoff} did not feel we were that staunch, and now he knows we are. I feel quite optimistic. After a lot of pushing from us, they have recognized this is an opportunity to do something quite new," she added.

Since the widening of Route 50 began in 1988, many Anne Arundel County residents have complained loudly about the number of trees felled and about Weems Creek turning into a muddy brown every time it rains.

Until recently, however, the Highway Administration denied that its anti-pollution efforts were inadequate or that the road work had damaged the streams. Today, Kassoff still said his agency is not totally to blame for the condition of Weems Creek because other development has occurred nearby.