Interior Secretary James G. Watt is moving to bring control over national policy on water projects under the Cabinet group of which he is chief.

While his office says the idea is to coordinate federal agencies with state and local needs, Watt's critics see it as a power grab that heralds more megabuck water projects for the West.

Meanwhile, the Senate Republican in charge of water projects, James Abnor (S.D.), chairman of the water resources subcommittee, has drafted legislation that would avoid the issue by rotating control over water policy among several agencies.

Watt's plan, which is still not fully drawn, was born with his proposed elimination of the Water Resources Council and the Office of Water Research and Technology at the Interior Department. The council is now the government's only coordinator of more than 300 earth-moving, canal, dam and waterway projects of interior, the Army Corps of Engineers and other agencies that together have transformed the nation's rivers and lakes.

But the Water Resources Council, which is composed of representatives from eight agencies, was born in 1965 and never could reach agreement on much of anything. The research and technology office served mainly to pass out study funds and technical help to the states. Watt's budget eliminates funds for these two groups.

However, billions of dollars are at stake in the control of water projects, which have always been major pork barrel items for members of Congress. President Carter's effort to curb the spending led to his high unpopular water project "hit list" and was a major factor in his poor relationship with Congress.

No new projects have been initiated in the past four years. Watt has pledged to change that, promising western governors that he will be sympathetic to their water development needs.

As chairman of the new Cabinet unit called the Council on Natural Resources and the Environment, Watt has set up a subordinate unit that his office describes as "a working group on water policy" to take over the Water Resources Council's coordinating function. A new Office of Water Policy in the Interior Department is tentatively intended to handle paperwork and staff for the working group. These changes do not require legislation.

Watt's sub-Cabinet working group includes delegates at the assistant secretary level, all political appointees, from interior, agriculture, the Army Corps of Engineers, the Office of Management and Budget and the Environmental Protection Agency, according to Emily DeRocco, an aide to Watt. It will be chaired by William Gianelli, the administration nominee to be assistant secretary of the Army for civil works in the Corps of Engineers. Gianelli was President Reagan's water resources director for six years in California.

As tentatively outlined, the group would report to the president through the Council on Natural Resources and Environment.

DeRocco said two organizational meetings have been held so far, with another set April 24. A central question is whether the group will seek authority to review and approve each water project proposal or whether it will confine itself to general policy statements and recommendations to the Cabinet members. Congress refused to fund project review authority for the Water Policy Council, and that was a major reason for its demise.

"This is a power grab for more money into water projects. Watt is moving to make a bigger pork barrel," said James Elder of the Sierra Club. "The decision has clearly been made to go into more and larger projects for the West." He noted that $375 million was cut from the $4.4 billion requested in the fiscal 1982 budget to continue the more than 300 projects.

DeRocco responded that Reagan asked Watt to chair the Cabinet group and that the task force "is not intended to be a czar over water. It's a coordinating body and a forum in which the Cabinet members can get together and talk about options before going to the president for advice and approval of major decisions."

Abdnor begins hearings next week on his bill to set up a Cabinet-level National Water Policy Board. The chairmanship would rotate annually among the EPA administrator and the secretaries of interior, the Army and agriculture. The board would recommend policy to Congress and the president, review agency policies for consistency and issue rules on implementing current law.

"It's not exactly what we heard Watt saying when we met him," an aide to Abdnor said, "but we don't think there will be much difficulty in coming to an agreement." Col. Bob Tener, executive aide to Gianelli, said the Abdnor bill was "not inconsistent" with the working group idea.

The Abdnor measure would also soften the impact of Watt's proposed chops in funding for state research institutes and river basin commissions by stretching the reductions over four years.