A California biotechnology company is expected to win federal approval within the next two weeks for the first release into the environment of a genetically altered, living organism.

The decision, which would mark a critical turning point for the infant biotech industry, comes after nearly two years of opposition from environmentalists who fear that, once out of the labs, genetically altered organisms might multiply out of control and cause widespread ecological damage.

Steven Schatzow, director of pesticide programs for the Environmental Protection Agency, said "the odds are very high" that the agency will grant its first approval of such a test within two weeks.

Advanced Genetic Sciences Inc., of Oakland, has asked EPA for permission to spray a plot of strawberry plants with two strains of live bacteria whose genes have been altered to prevent frost from forming. Schatzow said EPA's reply was "very likely to be favorable."

The biotech industry hopes that the EPA decision will clear the way for the use of gene-splicing to produce disease-resistant crops, microbes to eat oil spills, new pesticides and other products with an estimated market potential in the billions of dollars.

Schatzow said EPA expects a court challenge, and is laying the groundwork to prevail. "We're trying to do a really careful, thorough job," he said, and added, "We're not expecting this to be the rutabaga that eats Pittsburgh."

The AGS experiment is similar to one approved by the National Institutes of Health in 1983. That experiment was blocked in federal court, however, after being challenged by a group of environmental activists that questioned NIH's evaluation of the risks involved.

Jeremy Rifkin, who led the legal challenge against the NIH ruling, said yesterday that "EPA has caved into White House pressure to move these experiments out into commercial applications." He said EPA has not fully measured the risks of releasing a genetically altered organisms into the environment.

The AGS experiment involves bacteria that, if used commercially on a large scale, could have "a dramatic, long-term impact on worldwide rain patterns," he said.

EPA has only begun developing the methods to evaluate such risks, Rifkin said, "How can you judge a proposal when you haven't developed the methods of judging it?"

EPA approval of the AGS experiment would be "a very important milestone," said Harvey Price, executive director of the Industrial Biotechnology Association, a nonprofit trade association. "It is important for a federal agency to demonstrate it is not going to roadblock this technology unnecessarily."

"This would demonstrate to the business community that these things will be approved," said Daniel D. Adams, chairman and founder of AGS.

AGS had sponsored the work that was presented to NIH for approval two years ago. The company financed the research of Stephen Lindow, a plant pathologist at the University of California at Berkley.

Lindow designed the experiment in which genetically altered bacteria was to be used to prevent the growth of frost on potatoes.

As in the AGS experiment now before EPA, the Lindow test involves a microorganism that normally secretes a protein that causes ice crystals to form. The altered organism lacks the genetic instructions to produce the protein. By spraying the altered bacteria on potatoes or strawberries, researchers hope to prevent the growth of the normal bacteria that causes frost damage.

Because Lindow works for an institution that receives federal funds, he must have NIH permission to proceed. NIH approved his experiment, but was challenged in court by a coalition of environmentalists led by Rifkin, an author and activist opposed to such work.

U.S. District Judge John Sirica, in May 1984, granted an injunction blocking the experiment and prohibiting NIH from approving others like it, because it had not properly documented its review of the environmental effects of such experiments. The U.S. Court of Appeals for the District of Columbia ruled in February that NIH may approve experiments that would release genetically altered organisms, but only after conducting formal environmental assessments.

NIH has completed an environmental assessment of the Lindow experiment, but now must go back to court to get the injunction lifted before Lindow can proceed. A favorable ruling by EPA would allow AGS to proceed before Lindow does.

The AGS microorganism is regulated by EPA because it is considered to be a pesticide because it would be used to prevent growth of the normal organism, a pest which causes frost damage.

Schatzow predicted rapid approval of the AGS experiment earlier this month in remarks to a meeting of biotech companies, according to reports in Genetic Engineering Letter. He reaffirmed those expectations last week.

EPA is reviewing one other request to release a genetically engineered organism. Monsanto Co., the chemical and pharmaceutical giant, has requested permission to test a microorganism that has been genetically altered to protect young corn plants from the black cutworm.

Other agencies are also confronting the new products of biotechnology on a case-by-case basis.

The Food and Drug Administration has approved two genetically engineered pharmaceuticals for human use, insulin and human growth hormone. But these products do not involve the release of genetically altered organisms outside contained laboratories.

The U.S. Department of Agriculture is now reviewing one application by a private company that wants to conduct an outdoor test of a genetically altered plant, and plans to conclude the review next month, said Orville G. Bentley, assistant secretary of agriculture for science and education.