Interior Secretary James G. Watt reorganized his department yesterday with an eye to promoting mineral development. Agency officials challenge environmentalists who say the change comes at the expense of conservation and other public land uses.

The shuffle, in which about 700 employes will be transferred to the new Minerals Management Service, was billed by Watt as an effort to bring new efficiency to energy development and "save hundreds of millions of dollars per year previously lost through poor royalty management. . . ."

The four-month-old Minerals Management Service (MMS) has been responsible for managing federal tracts, both on and off shore, after they are leased. The office, which had 1,000 employes before the reorganization, monitors whether leaseholders meet federal rules and make royalty payments, and determines the value of tracts that will be put up for competitive bidding.

Under the reorganization, it now will also handle the awarding of leases for the Outer Continential Shelf. The Bureau of Land Management will retain control over onshore leasing.

The 300 employes of BLM's Outer Continental Shelf office and the 400 staffers in the U.S. Geological Survey's Geologic Division will be transferred to the minerals service. That USGS office is responsible for finding undersea mineral formations that are suitable for energy development and guarding against hazards such as oil spills.

Environmentalist Terry P. Sopher of the Wilderness Society charged that the plan "is a subversion of the multiple-use mandate and principles established by Congress and the Federal Land Policy and Management Act."

Another conservationist, who did not want to be named, said the change takes "management of the federal government's minerals out of the general category of multiple-use management that the law requires and concentrates them in a specialized service that'll be able to make decisions about federal energy development without thinking of how it balances" other uses, such as agriculture, wildlife protection and grazing.

Interior spokesman Harmon Kallman vehemently denied that charge, noting that the changes were based on recommendations made by the General Accounting Office in a report last June on the department's problems with minerals management. "Nobody is exempt from the law just because you move the boxes around on paper."

William D. Bettenberg, who was named acting director of the minerals service this week, agreed, noting that the reorganization does not change onshore leasing practices at all. Bettenberg, a career bureaucrat who also serves as deputy assistant secretary for policy, budget and administration, said, "All of the same sorts of environmental trade-off decisions still have to be made."

Bettenberg took over the MMS on Monday after Watt returned William P. (Perry) Pendley to his job as deputy assistant secretary for energy and minerals.

Sharon CocKayne, staff director of the House Interior subcommittee on mining, said the panel probably would take a "careful look" at the reorganization because it comes when Watt is straining his staff with an accelerated five-year OCS leasing schedule.

Speaking for subcommitte chairman James D. Santini (D-Nev.), CocKayne said of the MMS creation: "They took one step in the right direction . . . because minerals have always been on the back burner. But we don't want to see minerals management accentuated to the detriment of other environmental considerations."