The Defense Department has resumed monthly overhead payments to General Dynamics Corp. after determining that billing practices by the embattled weapons contractor have been revamped to prevent frivolous claims, a Navy official said yesterday.

The Air Force also said yesterday it was relaxing a ban on new contracts to a division of General Electric Co. that was imposed three months ago after a federal fraud investigation.

Air Force Secretary Verne Orr, citing internal improvements at GE, said he would allow most of GE's Space Systems Division to resume bidding on federal contracts. The ban will remain only for the Re-Entry Systems Operations, a component of the space division, Orr said.

In the General Dynamics case, Assistant Navy Secretary Everett Pyatt said the Pentagon had resumed monthly payments last Thursday at an undisclosed lower rate. It also will reimburse the firm for about $100 million frozen since March once bills are submitted, he said. At the same time, Pyatt said, the Pentagon will continue to withhold about $340 million it claims General Dynamics overcharged the government during the past 12 years until the billing disputes are resolved.

Defense Secretary Caspar W. Weinberger suspended overhead payments to General Dynamics March 5 after the corporate giant was found to have billed the government for such unallowable claims as kennel fees for a company executive's dog, country club dues, golfing weekends, lobbying, chili cookoffs and promotional gifts.

General Dynamics, the nation's third largest defense contractor with $6 billion in new contracts last year, had received monthly payments of $30 million to cover overhead costs associated with its production of major weapons systems.

Overhead payments covering a vaguely defined class of "general and administrative" costs are paid to contractors every month before auditors examine the billings. It takes years for auditors to get around to all the claims.

Pyatt said a four-month investigation of General Dynamics' overhead billing procedures revealed "general sloppiness" in which company officials often submitted bills without determining their legitimacy. "We found that costs that are clearly unallowable under government accounting standards, such as entertainment and lobbying costs, were being accumulated and charged to government contracts," he said. But, he added, the Pentagon found no evidence of management policy encouraging such improper billing practices.

General Dynamics, he said, has set up special accounts to cover allowable claims, trained and instructed officials to process the bills properly, and implemented a policy requiring at least two employes to check every bill for legitimacy.

Pyatt said the Pentagon deserves some blame for devising "imprecise and ludicrous" regulations that had failed, until recent tightening, to define what is an allowable claim.

Asked if General Dynamics had ever failed to charge the Pentagon for allowable claims because of the vague regulations, he replied: "No. The game is, 'catch me if you can,' and General Dynamics isn't any different than a lot of other firms."

Rep. John D. Dingell (D-Mich.), chairman of the subcommittee whose hearings revealed details of General Dynamics' abuses, noted yesterday that an Air Force official has found that acceptable accounting procedures are still lacking at the firm's Fort Worth division.