The Justice Department yesterday sharply curbed the federal government's claim to scarce water supplies in the West, revoking a Carter administration ruling that had angered western state officials.

The new policy, applauded by a wide spectrum of western politicians but denounced by environmentalists, says the federal government cannot preempt state water rights without express authorization from Congress. It nullifies a 1979 ruling allowing the United States to use water running through federal property unless state or private interests had already claimed it.

"Water is a scarce enough resource in the West without the federal government adding to the want," Attorney General William French Smith said in unveiling the new policy in Cheyenne, Wyo., before a joint meeting of the local Chamber of Commerce and Kiwanis Club.

The ruling preserves exclusive federal rights to water for Indian reservations, national forests, national parks, defense installations and other programs created by Congress. But it requires the government to obtain state approval to use water for other purposes on those sites--for example, for wildlife preservation, livestock watering or recreation.

It was not immediately clear how much of the West's water supply would be affected by the ruling, because the 1979 policy was rarely invoked, according to Justice officials. They said the new ruling is more likely to have impact on future water use in the West.

Western state officials said it means more water will be available for developers, farmers, miners, municipalities and other interests now competing with the federal government for rights. Private interests must obtain special water use rights from state authorities. And since about 60 percent of the West's water is found on federal land, those interests are coming into increasing conflict with the government, Smith noted.

The new policy will require the federal government to obtain the same rights as private interests for any uses not specifically authorized by Congress, Justice officials said.

In his speech, Smith portrayed this change as a major victory for western state officials who have bitterly fought for more control. "I am here today to tell you and the nation that the nightmare is over," he said.

The National Wildlife Federation, which immediately announced plans to try to block the new policy in court, challenged Smith's comment. "He should've said the nightmare is just beginning for the fish and wildlife that need the protection of the federal government," said the NWF's Chris Meyer.

Meyer and other environmentalists noted that water laws vary widely from one western state to the next, and private development often gets priority over the protection of streams, wildlife and scenic areas.

"What I see for the future is the federal government sitting on its hands while its streams run dry and the fish die," he said. "It's first come, first serve just like in the good old days of the West."

But among the westerners in Congress, the policy drew praise from conservationists as well as advocates of development.

"This is one of the few, if not the only, times that Sen. Gary Hart is in agreement with James Watt," said an aide to the liberal Colorado Democrat, referring to the fact that Interior Secretary James G. Watt was the first to call for the new policy, which now will be extended to all federal agencies.

"I was delighted," said Sen. Malcolm Wallop (R-Wyo.), a conservative member of the Energy and Natural Resources Committee. "I think he Smith gave the western states a strong leg up in their battles with the federal government in water issues."