The administration called off a 12-year effort to require installation of air bags or automatically closing seat belts in automobiles yesterday, ending the government's highest priority traffic-safety program.

Raymond Peck Jr., head of the National Highway Traffic Safety Administration, said that opposition by U.S. auto companies had killed air-bag development, and he had concluded that automatic belts probably wouldn't provide significantly more protection than the manual belts now installed in cars. Only one motorist in eight uses those belts, according to government surveys.

The safety standard Peck canceled would have required manufacturers to install passive restraints -- bags or automatic belts -- in the front seats of all new passenger cars in three steps: large cars by last September, compacts by September, 1982, and small cars by September, 1983. The first step of the ruling had been delayed by Peck in April as part of the administration's regulatory relief for the auto industry.

In making the decision, Peck apparently overruled the entire senior staff at NHTSA involved in the issue, sources said. The standard had been near the top of the administration's regulatory "hit list," but Peck said he hadn't been influenced by superiors. "It was my decision," he told reporters. "I certainly didn't enjoy it."

Peck said he would begin new, informal discussions with U.S. and foreign manufacturers about potential safety improvements and would try to revive air-bag development.

Consumer and insurance industry representatives, who saw a decade-long campaign for air bags ended yesterday by Peck, reacted angrily to his decision.

"It condemns to utterly needless deaths tens of thousands of Americans who will be killed in car crashes just in the coming decade," said a statement by the Insurance Institute for Highway Safety, on behalf of the auto insurance industry.

Ralph Nader said a suit challenging the decision is under consideration, but he seemed to hold little hope on the outcome.

Nader and his allies had fought for mandatory installation of air bags, cushions in the steering column and dashboards that inflate instantly in a crash. Estimated costs of air bags vary from $300 to $1,100, depending on production volumes and other assumptions. Automatic belts could cost between $75 and $100 apiece, more than twice the cost of manual belts, NHTSA says.

With the decision this year by auto companies to halt air-bag development, however, the issue was whether the administration would require manufacturers to phase in automatic passive belts. Unlike manual belts, which must be fastened by occupants, a passive belt slides across an occupant's lap and shoulder automatically as the door closes.

Peck said he had concluded that public opposition to the automatic belts would be so great that there would be no significant gain in the percentage of motorists wearing belts in crashes. Many motorists apparently fear being trapped by automatic restraints, he said.

NHTSA requires the automatic belts to have simple release mechanisms permitting occupants to escape cars after wrecks, and Peck took the position that most motorists would disengage automatic belts after entering the car.

Only 12 percent of American motorists currently use safety belts, according to NHTSA studies--half the rate that used belts in 1974. Consumer and auto-safety advocates contended that this figure could be boosted dramatically if automatic belts were required.

During the news conference, Peck bristled when a questioner suggested the decision would increase traffic deaths. Peck, a former official with the National Coal Association appointed to the NHTSA post by President Reagan, said he had labored hard over the decision and it represented "my best professional judgment."

The three leading U.S. auto companies praised the decision yesterday, calling it wise and "a prime example of good judgment."