Treasury Secretary Donald T. Regan and Council of Economic Advisers Chairman Martin S. Feldstein yesterday flatly contradicted each other on whether large federal budget deficits are helping keep interest rates high and whether Congress needs to pass immediately the administration's proposed stand-by tax increases.

Feldstein, in a speech before a U.S. Chamber of Commerce group, said, "The reason for the very high level of the long-term real interest rates is undoubtedly the unprecedented level of the budget deficits that are now predicted for the years ahead if no legislative action is taken."

Meanwhile, Regan told the National Automobile Dealers Association, "Economists who continue to claim that deficits make for high interest rates should climb down from their celestial observatories and acquaint themselves with terrestrial fact." Regan cited a "thorough" Treasury study as showing "there exists no necessary cause-effect link between deficits and interest rates."

Regan's position on deficits reflects that of President Reagan and his senior White House aides, who do not believe the legislative action cited by Feldstein--primarily passage of a stand-by tax increase to take effect in fiscal 1986 as proposed by the administration last winter--is needed now.

Asked about the conflict between two of the president's top economic advisers, another administration economist--who, like most economists, thinks Feldstein's analysis is closer to the mark--accused Regan of engaging in "election-time politics" by taking the position that it's not Treasury's fault that interest rates are so high. The Treasury secretary recently has blamed both banks' pursuit of profits and a misreading of future inflation by financial market participants for the high level of rates.

The only White House comment, a spokesman said, was that "reasonable men can disagree."

The Treasury secretary reiterated his prediction that "I think we are going to see lowering rates of interest." Feldstein made no prediction about the course of nominal interest rates but left no doubt that he expects no decline in real interest rates--that is, actual rates adjusted for expected future inflation--unless deficits are reduced substantially.

Regan and Feldstein also pointedly disagreed on whether the U.S. dollar is overvalued compared with other nations' currencies.

"The truth is," asserted Regan, "there is no external measure of what any currency is worth, other than what the market is telling us it is worth."

Feldstein, on the other hand, argued that the dollar's value relative to other currencies has been inflated nearly 50 percent in the last three years as a result of high real interest rates. The dollar's value would be lower and the large, growing U.S. trade deficit smaller if real interest rates were reduced, he indicated.

The CEA chairman has been trying to persuade senior White House officials and President Reagan himself of the links he described in his speech running through budget deficits, high real interest rates, an overvalued dollar, rising trade deficits, and, in the long run, a less productive economy. So far, he has had little luck, though earlier in the year Regan joined in seeking White House backing for quick action on a tax package that would take effect at the beginning of 1985 unless deficits fell sharply in the meantime.

Regan told the auto dealers he expects interest rates to fall for five reasons: faster economic growth, rising federal revenues, shrinking inflation, inflows of foreign money, and "some historical experience" showing no link between deficits and interest rates.

"The economy is doing exactly what we predicted it would do when unleashed: sit up on its haunches and roar," Regan said. That faster growth, including the increase in real GNP at a 9.2 percent annual rate in the second quarter of this year, is producing higher corporate profits, which in turn will swell federal revenues "causing the projected deficit to decrease."

Regan noted that the consumer price index "has shown the smallest increase--2.4 percent--in the last 17 years. If the marketplace believes that inflation will stay down in the future, that large spread between the real and nominal interest rates will begin to shrink. In short, shrinking inflation premiums works as a force for shrinking interest rates."

Feldstein, for his part, stressed the impact of the deficits. "According to our most recent estimates, if no legislative action is taken to alter the status quo, the budget deficits from 1983 through 1988 will total more than $1,200 billion and will more than double the outstanding volume of the public debt," he said.

"To get the public to absorb this debt requires a rise in interest rates and it is this rise that is reflected in the current high real interest rates," the CEA chairman declared.

Despite their disagreement over the impact of budget deficits, both men said government spending should be cut. But Feldstein also said that eliminating the deficits will require additional tax revenue as well. "Ideally, the extra revenue will be forthcoming without a rise in tax rates because future economic growth substantially exceeds our forecast," he said.

"But if this does not occur, the administration's budget calls for an increase in tax rates that begins in 1985" and these stand-by tax increases should be enacted this year, Feldstein continued. If not, he warned, "real interest rates will remain high, the dollar will continue to be overvalued, and a large segment of American industry will suffer the consequences of declining competitiveness."

Regan disagreed completely. He accused "liberals" advocating higher taxes to reduce deficits of having a "hidden motive."

"It's true that increased taxation will--temporarily--increase federal revenues, and that a portion of such revenues may actually be sprinkled on the deficit," the Treasury secretary said. "But the bulk of any increased tax revenues, unless Congress has suffered a general mutation, will also be transformed into new spending programs and new forms of entitlement benefits undreamed of by yesterday's liberal spenders."