Moving to conclude a case that complicated federal efforts to protect environmentally crucial wetlands, U.S. prosecutors agreed yesterday to drop criminal charges against Southern Maryland developer James J. Wilson, whose 1996 conviction in the case was overturned on appeal.

In a deal that allows both sides to avoid a retrial, Wilson's companies agreed to plead guilty to a single criminal count stemming from the filling of roughly 50 acres of wetlands in northern Charles County nearly a decade ago. They are to pay $1.36 million in criminal and civil fines and to restore or protect 155 acres of wetlands and buffers.

The penalties were less than those received at trial by the firms, Interstate General Co. and its affiliate St. Charles Associates. Still, the total was the largest criminal fine ever imposed for a violation of the federal Clean Water Act in Maryland, according to the U.S. Environmental Protection Agency.

The settlement "shows that we take protecting our ecologically vital wetlands seriously," said EPA Regional Administrator W. Michael McCabe.

Wetlands, once derided as mere swamps and routinely filled for development, are now acknowledged to be important filters that keep sediment and other pollutants from the Chesapeake Bay and other waters.

Wilson's Chantilly-based companies issued a brief statement yesterday, saying the agreement avoids "the enormous cost and disruption" of another trial and frees for development about 80 disputed acres in Wilson's signature St. Charles development, in Waldorf.

"The board [of directors] and management believe this settlement is in the best interests of shareholders," said Interstate General President Mark Augenblick.

The agreement was presented in Greenbelt to U.S. District Judge Alexander Williams Jr., who indicated he will approve the deal at a sentencing hearing set for Nov. 22.

Wilson, 66, of Middleburg, did not appear in court yesterday and made no public statement. He is proposing to build a horse racing track in Prince William County, and officials there this month said that the closure of the Maryland wetlands case against him might ease objections to the project.

After Wilson's 1996 conviction on four felony counts, Williams handed the developer a $1 million fine and sentenced him to 21 months in jail. The companies were fined $3 million.

Wilson remained free as he pursued an appeal. In December 1997, he won a ruling from the 4th U.S. Circuit Court of Appeals, which said federal regulators had improperly claimed jurisdiction over the wetlands in St. Charles.

The appeals court ruling concerned isolated wetlands--those far from rivers, streams or bays. The court said the U.S. Army Corps of Engineers may not regulate such wetlands unless it can establish that the land has a substantial link to interstate commerce.

That ruling placed a new burden on federal regulators. Previously, they simply asserted that isolated wetlands could be involved in interstate commerce--saying for instance, that waterfowl could land there on the way to or from another state where it is hunted.

The 4th Circuit's decision, while watched nationally, is binding only in the five states under its jurisdiction: Maryland, North Carolina, South Carolina, Virginia and West Virginia. After the decision, the Army Corps of Engineers changed its procedures for those states, while leaving intact its old rules elsewhere.

In the five affected states, Army Corps of Engineers officials are now closely examining whether wetlands are isolated, said John Studt, chief of the corps' regulatory branch. If the wetlands are found to be isolated, the officials then look for evidence of interstate commerce, he said.

"It certainly takes more time" than simply asserting a connection to interstate commerce, Studt said. He said that after such examinations, some wetlands escape federal regulation. He had no estimate of how many such plots have been identified.

Environmental regulators yesterday suggested the ruling's impact was limited because few wetlands are isolated.

During trial, Wilson's attorneys argued that the wetlands at issue in Charles County were in the isolated category because they were distant from the Potomac River, about eight miles away.

But in a statement of facts submitted along with yesterday's agreement, the companies agreed that one wetland area it filled had a stream running through it that flows to the Port Tobacco River, a Potomac tributary. Prosecutors said that meant the wetland is open to regulation.

"There are very few isolated wetlands in Maryland," said Assistant U.S. Attorney W. Warren Hamel. "We are absolutely satisfied the government's interests and the wetlands' interests have been satisfied here."

U.S. Attorney Lynne A. Battaglia hailed the settlement, saying it meant "a large amount of wetlands is going to be restored."

Wilson's case was closely followed by home builders, ranchers and others who believe federal environmental regulators at times usurp people's rights to use their property.

"It's an important case," said Nancie Marzulla, president of Defenders of Property Rights, a Washington-based legal foundation.

Marzulla pointed to abundant open space and wooded areas in the St. Charles planned community, which is home to roughly 33,000 people, or one in four Charles County residents.

"The notion that you can build a beautiful environmentally sensitive community and still run afoul of the law is shocking," Marzulla said. "It really does frighten many landowners."

Under yesterday's agreement, Interstate General Vice President Benjamin L. Poole pleaded guilty on the company's behalf to a single felony violation of the federal Clean Water Act. The company is to pay a $1.5 million fine, with $500,000 of that forgiven when it turns over two acres of commercially valuable land in Waldorf for wetlands reconstruction.

In a separate civil proceeding, Interstate General and St. Charles Associates are to pay an additional $360,000 fine.