Interior Department officials yesterday disclosed the contents of a proposed legal settlement dealing with millions of dollars' worth of federally subsidized water in California, despite warnings by the Justice Department that the revelations may jeopardize the government's chances if the case goes to trial.

The disclosure was an attempt to squelch debate over a five-year-old lawsuit with the Westlands Water District near Fresno. The district, in a desert valley that has been transformed into an agricultural cornucopia with subsidized water, is seeking rights to billions of gallons of water for land that critics say was brought under irrigation illegally more than 20 years ago.

The controversy has been boiling since November, when Rep. George Miller (D-Calif.) was privately briefed on the settlement and immediately went public with a denunciation of the department for what he called a "massive giveaway" to Westlands at the Treasury's expense.

In a hearing before Miller's Interior and Insular Affairs subcommittee, the Interior Department's negotiators in the court case strongly denied Miller's charges, contending that the government would be better off under the settlement than it would be even if it won the lawsuit.

But at the end of the occasionally heated hearing, Miller said he remained convinced that the proposal would guarantee Westlands massive amounts of water for which higher-paying customers could be found, and would "short-circuit" a 1982 law designed to make farmers pay more for their federal irrigation water.

At the heart of the dispute is the legal status and the price of 250,000 acre-feet of water that has been delivered to Westlands through the Central Valley Project since the early 1960s. An acre-foot is enough to flood an acre to a depth of a foot, or more than 320,000 gallons.

Under the proposed settlement, the government would concede the water to Westlands but the district would have to pay a higher price. Interior also would agree to use its "best efforts" to provide Westlands an additional 100,000 acre-feet of water, which would give the district as much water as its irrigation system is designed to handle.

Interior officials conceded that the agreement would reduce the water available for other California customers in dry years.