U.S. aid officials here are seeking authority from Congress to switch up to $300 million tied up in failing "turkey projects" to other areas to help meet Egyptian demands for greater flexibility in the use of the annual $1 billion economic assistance program to this country.

Disclosing the request, Michael P. W. Stone, the new Agency for International Development (AID) director here, outlined in an interview his plans to reform the bulky and increasingly criticized program. He also wants to cut back on the huge number of projects and concentrate instead on a few major investments with greater visibility to the Egyptian public.

Stone revealed in addition that President Hosni Mubarak, who began a state visit to Washington today, has asked the United States to give top priority now to the rehabilitation of the country's disintegrating water and sewage system, particularly here in the capital.

The sorry plight of Cairo's sewer network, which one western diplomat here called "a potential political time bomb" for the Mubarak government, became clear last month when a principal main burst and flooded the capital's middle class residential area on the west bank of the Nile.

A similar, though smaller incident last summer in a lower class district of Cairo provoked riots and a serious clash betweeen outraged residents and the police. This, together with the latest sewerage catastrophe, has alerted the government to the possible political consequences of the problem.

Discussing the Egyptian demand for greater flexibility in the U.S. aid program, Stone said he thought "some progress" had been made since Mubarak's last visit to Washington almost a year ago. He argued that two-thirds of the aid was already in the form of "quasi-cash transfers" over which Egypt had effective control in spending.

This, he said, included $250 million earmarked for the PL 480 program under which Egypt buys over 1 million tons of American grains, $300 million for commodity imports, mostly of raw materials, and $50 million to $100 million being spent on village projects under a decentralization project.

Egypt has been asking Washington for several years now for equal treatment with Israel in the disbursement of U.S. economic, as well as military, assistance. Israel is usually given wide latitude on its own how U.S. aid money will be spent.

In the case of Egypt, the disbursement is often contingent on the two countries reaching agreement on specific projects, many of which take years to complete. The result is unspent money blocked in what is known as "the pipeline." Right now, this pipeline amounts to roughly $2.5 billion.

Last February, when Mubarak visited Washington, he asked specifically for greater U.S. flexibility in the aid program, both to reduce the pipeline and allow Egypt to switch funds at least from one project to another within the same sector.

The AID director said the program had grown to include 66 major projects and 2,000 subprojects "very difficult to manage effectively."

Beginning in 1976, U.S. economic assistance to Egypt tripled in one year to nearly the $1 billion it now averages annually, creating a scramble by AID officials to find ways to spend, and Egypt to absorb, the money. Egypt now receives more American economic aid than any country except Israel.

Since coming here last summer, Stone said he had discovered that, despite the $7.5 billion provided by Washington since 1975, few Egyptians understood what the United States was doing to bolster the economy. "If you go and ask 10 people in the street what the AID program is, you won't come close to a consensus," he remarked.

"I would like to make the program more comprehensive to the Egyptians," he added.

He hopes to do this, he said, by gradually reducing the vast array of projects and emphasizing the "quality" and "visibility" of a few. One such major investment AID is considering, he said, was the development of the huge Abu Tartar phosphate deposit near Kharge oasis in the western desert.

Another reform both AID and Egypt seek, according to Stone, is permission from Congress to reprogram most of the $300 million committed now to what he termed "turkey projects."

"A turkey today is unlikely to be anything but a turkey 10 years down the road," he said. One example he cited was a $27 million fishponds and agricultural research project near Zagazig in the Nile Delta, which he described as "a mess" because it turned out the soil does not hold water.

"I'd like to cancel the project or substantially redesign it," he said. "But U.S. law says we cannot arbitrarily deobligate and reobligate the funds to other projects. We'd love to have that authority."

As the U.S. financing system currently works, AID funds that are not spent once committed to a given project revert back to the U.S. Treasury. "This represents a loss of funds given for the U.S. aid program to Egypt. Egypt is reluctant to do that," he said.