Alfred S. Regnery was identified incorrectly in yesterday's Washington Post as head of the Justice Department's Lands and Natural Resources Division. The division is headed by Assistant Attorney General Carol E. Dinkins. Regnery is one of her deputies.

Interior Secretary James G. Watt yesterday denied charges of collusion in a Justice Department decision to oppose a congressionally mandated moratorium on mineral exploration in a wilderness area in Montana.

The charges of collusion arose because Watt's former employer, the Mountain States Legal Foundation, also is challenging the congressional moratorium in court.

Watt's denial came after attorneys for the Wilderness Society and other environmental groups accused Watt of improperly undermining the government's case in a federal lawsuit over the Bob Marshall Wilderness Area in Montana.

Attorney General William French Smith has told Congress that the Justice Department would urge a federal judge in Billings, Mont., to rule that the congressional action was unconstitutional.

The lawsuit was filed by Mountain States Legal Foundation, which Watt headed until he joined the Cabinet, and the Pacific Legal Foundation. Both are pro-development, Western legal groups.

The new storm erupted around Watt after the attorney general's unusual action became public and Justice then released letters from Pacific Legal Foundation lawyers which appeared to indicate that the government had told them the case would not be pushed aggressively.

In a July 22 letter to the Justice Department, Ronald Zumbrun, president of the Pacific group, wrote: "We were informed that the filing of this lawsuit was received with favor by the involved officials of the executive branch." Zumbrun also asserted in the letter that Justice had not made a serious enough effort to make Watt "look good" in the case.

In a July 24 reply to Zumbrun, Alfred Regnery, head of the Justice Department's Lands and Natural Resources Division, answered rather angrily that Justice could handle the case "without advice" from Zumbrun and that some of the suggestions in the letter were "highly irregular."

Yesterday, Robert Best, deputy counsel for the Pacific Legal Foundation, said his group's information was "third hand" and did not come directly from Interior or Justice. He said Zumbrun was "sort of venting our frustrations" in the letter.

However, Best said the Pacific lawyers did gain the impression, from discussions with government lawyers, that the action's constitutionality would not be supported by Justice and that Watt was lukewarm about supporting the congressional action. Zumbrun's letter was written more than two weeks before Smith informed Congress of his decision.

James Goetz, an environmental attorney, told the Billings court the relationship between Watt and his old employer was "suspiciously cozy."

In a formal statement, the Interior Department said Watt "had absolutely no involvement in what the legal foundations did. He has had no ties with them since he became secretary."

Watt reluctantly agreed to support the congressional action last May, but had reservations about its constitutionality. Shortly afterward, the Mountain States Legal Foundation filed suit against the action, with the Pacific Legal Foundation later joining in.

If nothing else, the situation placed Watt in another embarrassing position and left open the question of whether the congressional action was being undermined through the "back door."

The controversy illustrated how murky the ethical situation can get when a Cabinet officer like Watt, who came to Washington from an ideological organization strongly opposed to many Interior policies, brushes up against his old employer in his new government role.

Last year, as president of Mountain States, Watt joined in a petition seeking approval of mineral development in the Montana wilderness. The new suit is entitled Mountain States Legal Foundation vs. Watt, placing the secretary on both sides of the issue in the past year.

Lawyers for both sides denied yesterday that Watt had made any direct representations about softening the Interior Department's stance in the latest lawsuit.

But, in interviews with attorneys, it became clear that both the government and private lawyers at least made assumptions that Watt and the Justice Department did not wholeheartedly believe in the congressional action.

"In fairness, Justice never informed us of that directly," Best said.

Pierce Elliott, Interior's deputy solicitor for lands and minerals, said his instructions from Watt were "that we should vigorously pursue the lawsuit."