White House counselor Edwin Meese III said yesterday that the Reagan administration will not permit the Central Intelligence Agency to spy on U.S. citizens here at home.

"The White House is absolutely opposed to the CIA becoming involved in domestic spying," Meese said. "We are not going to put the CIA into domestic espionage or the FBI into foreign intelligence."

Meese said that Reagan soon will issue an executive order meant to improve the CIA's ability to gather information abroad but not affecting that part of a 1978 executive order by former president Carter prohibiting domestic CIA surveillance of American citizens.

It was the first public declaration by a White House official that the administration would not adopt a proposed draft executive order authorizing the CIA to conduct covert operations in this country and spy on Americans.

Last Friday, at a closed session of the Senate Intelligence Committee, CIA Deputy Director Bobby Inman reportedly gave a similar assurance, saying "that the job of the CIA is abroad."

Meese, like Inman, dismissed the importance of the draft order. The White House counselor said it was one of many proposals that had been made for reordering the CIA. He said it probably was "leaked" to the press to prejudice the case against any changes in CIA procedures.

"I don't know of anyone who espoused these changes [allowing domestic spying]," Meese said.

Meanwhile, in testimony before a Senate appropriations subcommittee, Attorney General William French Smith said the new executive order for the CIA is still in a preliminary stage. He said the controversial draft order recommending domestic spying was simply "a preliminary draft of someone's ideas at best."

In a breakfast meeting with reporters, Meese gave these other views:

Reagan continues to oppose a draft to meet military manpower needs. Instead, the administration is examining a number of options to upgrade pay, educational and other fringe benefits and discipline in the armed services.

Budget reductions for the arts, humanities and public television were justified, and there is some question whether the federal government should be involved in these activities at all.

Asked to define the "truly needy" whom Reagan has said will not be deprived of services under his economic program, Meese responded: "The truly needy are those people who through no fault of their own are dependent on government to exist."