The Interior Department has decided to let ranchers and hunters in Minnesota trap gray wolves, a threatened species that numbers only 1,200 in the lower 48 states, because it says the wolves have shown they can survive whether or not they are protected.

"The number of wolves in Minnesota has been remarkably stable for many years, despite quite radical changes in the way the law has treated the species," the U.S. Fish and Wildlife Service said in announcing its plans to allow the killing of 50 to 160 wolves a year. "It, therefore, is impossible from a biological perspective to argue that complete protection of the species is necessary . . . ."

The Defenders of Wildlife and 13 other conservation groups called the government's reasoning "the most fallacious argument we have ever encountered," and immediately filed suit to block the new rules, which are to take effect Oct. 11.

The confrontation over the gray wolf is the most recent skirmish in an ongoing battle between wildlife groups and the Reagan administration, which has taken steps to end protection for several species and has been reluctant to add species to the endangered list.

The administration's application of "cost-benefit" analysis to the Endangered Species Act resulted in only one species being added to the list in the administration's first year. When Congress reauthorized the act last year, it prohibited the use of cost-benefit analysis. More than two dozen species have been added since then.

At one time, gray wolves roamed North America, but at the turn of the century several states and livestock associations placed a bounty on them. By 1967 the government said the gray wolves had become extinct everywhere in the United States except Minnesota, where about 1,200 survive in remote areas, and Alaska, where they are still plentiful.

In 1973, the government declared the gray wolf an endangered species in the lower 48 states, protecting it from all hunting and trapping. Minnesota legislators, ranchers and deer hunters objected, and in 1978 Interior created a two-tiered classification system that changed the status of wolves in Minnesota to "threatened."

The 1978 change allowed the government to trap wolves that had killed livestock.

Under the new rules, the state will be divided into five sections, each with a "minimum wolf population limit." The public will be allowed to kill wolves in the more populated southern regions of the state. But no trapping will be allowed in the remote northern areas, according to James Engel, director of Interior's endangered species office for the Minnesota region.

Engel said the wolf population in Minnesota has remained stable since 1918 even though a bounty was paid for wolf pelts for several decades.

"In years when large numbers of wolves are removed from the population, research indicates that both litter sizes and the proportion of females in litters tend to increase," Interior officials said. " . . . The species size is to some extent self-regulating."

Engel said that up to 50 percent of the wolves in Minnesota could be "harvested" without adversely affecting their population.

Toby Cooper, a director of Defenders of Wildlife, has accused Interior of violating the Endangered Species Act, which requires it to restore threatened species, not "just maintain them at a threatened level."

The government also has "ignored real history," Cooper said, contending that wolves have survived in Minnesota only because they have lived in remote areas unsuited for livestock. In the last decade, he said, the wolves have moved south into livestock areas in search of food.

Engel said the wolves' migration was a factor in the rule change. There has been an increase in complaints about wolves attacking livestock and, even though a government study concluded that such reports were exaggerated, sentiment against wolves has remained high.

In announcing its new rule, Interior said that "current regulations actually have hindered rather than helped wolf conservation," because they have upset ranchers.

Under the old rules, trapped wolf cubs could not be killed because they could not have killed livestock.

"Farmers who have lost livestock to wolves and are unable legally to respond by setting traps understandably are outraged when a government trapper succeeds in catching a wolf only to release it again," Interior said. "Such outrage cannot serve the cause of wolf conservation."

The new rules will allow trappers to kill any wolf, including a cub.

"What it came down to," an Interior official said, "is why not allow more trapping? If it won't hurt the wolves and it will pacify local residents, then where's the harm?"