Members of the covert-operations division at CIA headquarters here, not senior officials, reviewed and approved a guerrilla-warfare manual advising Nicaraguan rebels on "selective use of violence" to "neutralize carefully selected and planned targets," according to Reagan administration officials.

The officials said yesterday that there was confusion about use of the word "neutralize" and that it was not intended to mean or imply assassinations, strictly prohibited by presidential order.

In addition, the officials said, some CIA personnel reviewing the manual at headquarters or in Central America, where it was initially drafted, could not read the Spanish version.

Sen. Sam Nunn (D-Ga.), one of two senators who attended a CIA briefing Monday about the manual, said yesterday, "It is my conclusion after reading the manual that the word 'neutralize' is subject to interpretation but could be interpreted by reasonable people to mean assassination . . . and thousands of copies should not have been sent out, as was the case.

"Review did take place in Washington, but CIA briefers were vague as to who conducted the review . . . we need more answers," he said.

Sen. Malcolm Wallop (R-Wyo.), with Nunn at the briefing, said the original document was in English and called for government officials to be "removed." That meant "removed from effectiveness and in no way meant assassination," he said.

The Senate Select Committee on Intelligence, for which the briefing was given, said yesterday that it plans an investigation next week.

Administration officials said CIA Director William J. Casey and other senior agency officials did not approve the manual and were unaware of it until asked about it this month by the Associated Press.

Officials said an internal CIA investigation has determined that, at most, about a dozen middle- and low-level CIA personnel reviewed or handled the manual after a contract employe drafted it last year. In the process, some portions of the initial draft that advised hiring criminals and creating martyrs were deleted before 2,000 copies were published.

Other sources said investigators have had difficulty determining the chain of command involved and said Casey is disturbed that facts about the process seem to change from day to day.

Investigators initially believed last week that all paragraphs thought to be offensive had been removed before the manual was distributed. In Sunday's presidential debate, President Reagan said only 12 uncensored copies were circulated. It is now apparent that these accounts are incomplete.

Deanna Hammond, a translator for the Congressional Research Service, which made an English-language version of the manual for the House Permanent Select Committee on Intelligence, said yesterday that the Spanish and English versions of the manual's controversial parts are so similar that even someone unfamiliar with Spanish should not have been confused by them.

She said that the word "neutralize" was "neutralizarse" in the Spanish version and that the verb in its various forms has no other English meaning. The phrase "selective use of violence," she said, is also very similar in its Spanish version, "uso selectivo de la violencia."

An administration official said the manual was drawn up from insurgency manuals available to the CIA as long ago as the Vietnam war era. The official said all copies of the manual are being withdrawn.

Wallop said that he has read the 90-page manual and that, "taken as a whole, the manual calls for the avoidance of violence to the extent possible and was designed to put restraint and a rationale on guerrilla operations . . . as a whole, the manual is a code of conduct for which the United States ought not to be ashamed."

Wallop said Casey has "been responsible and forthright on this and, when the political season is over, people will see this for what it is."

Vice President Bush, a former CIA director, said yesterday in Wisconsin that the controversial language "could mean various things." He added, " . . . You're dealing with an awful lot of brutality, a lot of loss of life down there."

The CIA investigation is being conducted by its deputy inspector general because Inspector General John Stein headed the covert-operations division last year when the manual was written, reviewed and distributed.

Officials said the investigation has cleared Stein and the CIA's No. 2 official, John N. McMahon, of involvement with or knowledge of the manual.

"I've heard nothing to conclude one way or the other whether senior officials approved the manual or not . . . ," Nunn said yesterday. "I would think the review process would be tight and far up the line."

Nunn said Monday's three-hour briefing suggested to him that the CIA has "serious problems in management and control over covert operations." He added, "When you are going to publish thousands of copies of a sensitive document in a sensitive operation, top managers should know."

Monday's briefing was conducted by two officials from the covert-operations division who have held their jobs less than a month, officials said, and several persons at the session later voiced frustration about what they termed imprecise answers.

Nunn said the controversy highlights a serious problem with covert operations in Nicaragua only because the administration's chief reason for them is purportedly interdiction of arms from there to leftist rebels in El Salvador. The Nicaraguan rebels, known as contras, are seeking overthrow of the Sandinista government.

"The long-term questions are the management of covert operations and whether the United States can enter into this kind of limited operation when the contras have another purpose," Nunn said.

Administration officials familiar with the three-year secret war in Nicaragua said terror tactics outlined in the manual are grim and should not necessarily surprise anyone but are almost inevitable outgrowths of such a covert plan.

National Security Council records indicate that the initial Nicaraguan operation plan, drafted in November 1981, was to "work primarily through non-Americans" against the Cuban presence in Nicaragua but that, in some cases, the CIA was to "take unilateral paramilitary action -- possibly using U.S. personnel -- against special Cuban targets."