The Agency for International Development has terminated a $1-million-a-year world population study contract between the agency and a George Washington University group headed by Dr. Murdock Head.

AID officials say that the contract is being converted from a "sole source" basis to competitive bidding, and they deny that the change is related to the recent publicity involving Head.

Head is the founder and executive director of the Airlie Foundation in Warrenton, Va. He has recently come under grand jury investigation involving alleged cash payoffs to two congressmen in connection with efforts to obtain federal funding for an Inter-American Health Dialogue Center at Airlie. Head has denied any wrongdoing.

Head also is chairman of the George Washington University department of medical and public affairs. In that capacity, he serves as chief investigator for the Population Information Program, a group that publishes periodic reports on contraceptive technology around the world.

Project Director Werner Fornos charged that AID's decision to end the contract is motivated by a desire to cut the agency's connections to Head.

"A vital communications link is about to be disrupted," he said, as the result of "just an arbitrary political decision . . . The publicity obviously has made a fair decision somewhat dubious."

AID officials denied that. The population contract, said Sander Levin, top assistant to AID Administrator John J. Gilligan, is one of many in the process of being converted from a sole source basis.

"We are trying to use the competitive bid process," Levin said. ". . . Head had absolutely nothing to do with the decision. "It was based on nothing but the wise use of taxpayer dollars."

Levin said the decision to entertain bids on the contract was made eight months before publicity about Head. The George Washington contract lapsed and was extended three times during the bid process, he said.

Fornos countered that the population contract is one of very few that hace been converted to competitive bids, and that the bid process has been unduly long and complexbecause of interference by Levin.