Against the advice of the Justice Department, the General Services Administration attempted last month to sell thousands of tons of damaged asbestos.

The sales effort, which would have ended a seven-year suspension of federal sales of the dangerous material, fell through last week when the only bid came up far short of what it would cost the government to remove the asbestos from a deteriorating warehouse in Baton Rouge.

The GSA now will have to spend up to $1 million to bury it.

The burial project, expected to take two to three months, is the latest problem to confront the government in the wake of thousands of asbestos-related lawsuits from workers who contend exposure to the material, extensively used in shipyards during World War II, is to blame for their health problems.

The GSA is storing, as part of the national strategic stockpile, more than 52,000 tons of asbestos worth nearly $30 million in warehouses around the country. The Federal Emergency Management Agency has decided that about half of that is no longer needed for national security. But because of the lawsuits and new evidence linking asbestos to lung diseases and other ailments, the GSA suspended all sales seven years ago for fear that it could open up the government to even more claims.

"Some sunny day when the litigation is resolved, I presume it will be sold," said Carroll F. Jones, the GSA commissioner for Federal Property Resource Services and the official in charge of managing the stockpile.

In the meantime, storage has presented problems. In 1978, a leaky roof was discovered in one of the GSA's warehouses in Baton Rouge, threatening 9,818 tons of asbestos that was kept there.

"It's just been sitting there for three or four years and nobody's cleaned up the leaks," Jones said. "It's destroyed the asbestos as far as any uses goes . . . . It's all wet and nobody uses wet asbestos."

Justice attorneys, concerned about the potential for government liability, advised against any attempts to sell the spoiled material, but last month Jones put out a solicitation for bids anyway.

"We said, 'Let's see if there is any market out there and see if we can make a few bucks,' " he said. "If I went ahead and buried the stuff, I'd be answering questions for the next 10 years from people who said, 'My God, you could have made $10 million.' "

But Jones' plan fizzled Friday when he received only one bid, from a local shingles manufacturer who offered $4,500 for all the asbestos. "That's unacceptable," Jones said. "Our administrative costs of removing it would cost us more."

As a result, Jones has adopted his fallback plan to bury the asbestos in a site near the warehouse. But that still leaves him with 17,000 tons of unneeded asbestos piled up in sealed boxes in other warehouses in Massachusetts, Indiana and New Jersey.

Jones said he is undeterred. "We've still got the asset," he said. "Who knows what it will be worth when it's put on the market?"