The Office of Management and Budget illegally blocked federal efforts to ban most uses of asbestos, with the help of a high-ranking Environmental Protection Agency official who "capitulated to pressure," according to a new congressional report.

The report, issued yesterday by the House Energy and Commerce subcommittee on oversight and investigations after a six-month inquiry, said that OMB, in "an unlawful abuse of power," pressured EPA Deputy Administrator A. James Barnes late last year to refer asbestos to two other agencies with less authority to regulate hazardous substances.

A month later, the EPA abruptly withdrew a set of asbestos regulations that had taken more than five years to draft. The agency said it had "no choice" but to refer the issue to the Occupational Safety and Health Administration and the Consumer Product Safety Commission.

The House report said that Barnes made the decision on the basis of a legal memorandum from OMB, without consulting his own agency's lawyers or regulatory experts. The report also charged that Barnes "misused EPA's office of general counsel" by ordering it to prepare an after-the-fact legal justification for a decision that "demoralized his staff, embarrassed his agency and breached the trust invested in him by the American public."

The subcommittee's five Republican members sharply disagreed with the report's characterization of Barnes and OMB, although they said they "do not disagree with the basic facts in this investigation."

In a statement, the EPA called the charges against Barnes "a harsh and unfair personal assault" and said it still intends to propose rules to control asbestos.

In a letter to subcommittee Chairman John D. Dingell (D-Mich.), EPA Administrator Lee M. Thomas defended his deputy in even stronger terms.

"I continue to have full confidence in him and reject the abusive allegations incorporated in this report," Thomas wrote.

The agency had no immediate comment on any of the other charges leveled in the House report, which called the asbestos incident the "quintessential illustration" of the way OMB is using its authority to review agency rule-making.

"The report reveals how the OMB is engaging in a pervasive and unlawful scheme to displace agency rule-making authority," Dingell said.

The report is the latest chapter in a long-running dispute about regulation of asbestos, an insulating and fire-retarding mineral that is known to cause cancer and respiratory ailments in humans.

The EPA has been moving steadily toward more stringent regulation of the material under the Toxic Substances Control Act (TSCA), a 1976 law designed to fill the jurisdictional gaps over hazardous substances created by a patchwork of federal laws.

By mid-1984, the agency had drafted two packages of rules that would have banned many uses immediately and phased most others out in 10 years. The proposals went to the OMB, as required under a presidential order that gives the budget office the power to review all rule-making activities.

According to the House report, the rules were held up there for months while OMB and EPA officials wrangled over the need for such comprehensive and expensive regulations.

The impasse ended last Feb. 1, the report said, when the EPA "stunned the public, the Congress, and the EPA staff" by announcing that it had decided to withdraw its rules and turn asbestos over to OSHA and the CPSC.

EPA officials said that the language of the toxic substances act gave the agency no choice. But the House subcommittee said the legal interpretation of the law came from OMB.

"The real reason EPA abdicated its responsibility to deal with asbestos risks is clear," the report said. "It was directed by the Office of Management and Budget."

According to the report, Barnes made the decision to withdraw EPA's regulatory package after meeting with OMB official Robert P. Bedell last Dec. 27.

At that meeting, Bedell showed Barnes a three-page memorandum, prepared for then-OMB Director David A. Stockman, that laid out the argument for referring asbestos to other federal agencies.

Barnes took a copy of the memo back to EPA, the report said, but did not share it with the agency's lawyers or asbestos experts, who had earlier considered and rejected such a narrow interpretation of the law. As the agency's former general counsel, the report said, Barnes had been involved in some of those discussions.

The House investigation found that the agency's lawyers didn't discover that the rules were going to be withdrawn until the public affairs office contacted them about a press briefing.

In testimony before the subcommittee, Barnes acknowledged that EPA's general counsel prepared a legal analysis at "the eleventh hour" when Thomas noted that the agency had no documented legal support for its decision. The analysis was dated Jan. 31, the day before the decision was publicly announced.

EPA's decision to withdraw its rules drew an avalanche of criticism from Congress, environmental groups and public-health officials, and the agency reversed itself again a few weeks later. Officials said they needed more time to review policy issues.

Officials said yesterday that the agency now believes it is not required to hand asbestos off to OSHA and the CPSC. In its statement yesterday, the agency said it is "determined to control the environmental hazards posed by asbestos."