The Justice Department has dropped plans to appoint Herbert E. Ellingwood, an outspoken Christian fundamentalist, to head the office that screens candidates for federal judgeships, according to government sources.

Ellingwood, now chairman of the Merit Systems Protection Board, has been the subject of an unusual preemptive campaign to mobilize opposition to his nomination before it was made. The FBI has been conducting an extensive background check on Ellingwood, interviewing some of his critics two and three times.

But Attorney General Edwin Meese III, a longtime associate of Ellingwood, apparently decided it would be hard for Ellingwood to win Senate confirmation as head of the department's Office of Legal Policy. White House officials, already facing several battles on Capitol Hill, welcomed Meese's decision.

"They realized it was an uphill struggle at best," a Senate official said. "There was no way they were going to win it. There was just too much baggage."

In the wake of the Senate Judiciary Committee's rejection of William Bradford Reynolds' nomination to be associate attorney general, this official said, "Putting Ellingwood out there would be like putting fresh bait in front of a bear."

A spokesman for Ellingwood said he would have no comment. Ellingwood is a Christian activist who once said that President Reagan, while governor of California, was healed of ulcers after being told that a prayer group was praying for him.

People for the American Way, a liberal lobbying group founded by television producer Norman Lear,led the campaign against Ellingwood and prepared critical radio ads to be aired if the nomination was announced. The group was also ready to distribute transcripts of various speeches Ellingwood has made to Christian groups to buttress its argument that his religious views would influence the selection of judges.

In one speech, Ellingwood said a California judge had told him, "I never take God into the courtroom."

"Well, I wouldn't want him for a judge," Ellingwood said. " . . . Let me tell you, I never go anywhere without Him, courtroom or bedroom or living room or outside . . . . For a person who doesn't know Jesus Christ, then religion is one thing and law is another and our purpose is to show the proper interface of that . . . . "

In another address, Ellingwood said he regularly prays for Chief Justice Warren E. Burger because "there's nobody that can operate a system like that . . . without God's help." In a third appearance, Ellingwood said that "Christian lawyers" should "be praying for the healing of the judicial process."

Critics focused on reports that Ellingwood had provided help to a "Christian talent bank" run by the American Coalition for Traditional Values, a network of 100,000 fundamentalist churches. Ellingwood has said he suggested that the group begin an advisory service to recruit Christians for presidential appointments, but that he never advised the group on civil service openings.

A House panel also criticized Ellingwood for helping arrange a merit board job for Gretchen W. Thomas, the wife of a friend who had given Meese's wife a $15,000 interest-free loan. Ellingwood has said he did nothing improper.

"I certainly think we contributed to making a case that Ellingwood would not be an appropriate appointment for such a sensitive job," said Melanne Verveer, policy director of People for the American Way. "Clearly it's a victory for the separation of church and state and an independent judiciary."