For the first time, the Environmental Protection Agency yesterday authorized use of a pesticide containing DDT, a powerful insecticide banned 14 years ago because it disrupted the reproductive cycle of endangered birds.

In allowing use of the pesticide dicofol for agricultural purposes, the agency required manufacturers over the next 31 months to reduce its DDT levels to less than 0.1 percent.

That amount, the EPA said, will not add significantly to background levels of the toxic chemical, which is considered a probable cause of cancer in humans.

The EPA prohibited nearly all uses of DDT in 1972 after it was linked to thinning and eventual cracking of peregrine falcon eggs and those of other endangered species.

Dicofol has long been used against mites on citrus and cotton crops in several western states and Florida. The EPA discovered in 1980 that an unintended chemical reaction produced DDT at concentrations as high as 10 percent, but an in-depth review did not begin until last year.

"It slipped through the cracks," assistant EPA administrator Jack Moore said.

Environmentalists have called for a ban on dicofol, maintaining that its DDT component not only hastens extinction of the peregrine falcon but also threatens fish and other birds, including the brown pelican and bald eagle.

Erik Olson, a lawyer for the National Wildlife Federation, said the EPA's decision to permit continued use of dicofol is a "bad precedent" that could lead to sanctioning of other pesticides damaging to endangered species.

The agency's 0.1 percent limit on DDT in dicofol "may not sound like much," he said, "but you're talking about thousands of pounds of DDT released yearly in limited areas. It is likely to be the major source of DDT in the environment."

The EPA proposed banning dicofol in October 1984 after concluding that its DDT ingredients, and residual levels of DDT in the environment, posed a "significant threat" to endangered species.

Moore said yesterday that the agency took the tougher stance 19 months ago because DDT levels in dicofol were much higher than the 2.5 percent that manufacturers now say it contains. He said dicofol producers say they can reduce DDT concentrations to 0.1 percent by the EPA's deadline of Jan. 1, 1989.

"We're not saying there are no risks associated with less than 0.1 percent," Moore said at a news conference, "but that the risks are held to be acceptable."

The EPA decision requires immediate reduction of DDT concentrations to less than 2.5 percent. All dicofol products sold after Jan. 1, 1989, must contain less than 0.1 percent DDT, and no dicofol containing more than that can be used after March 31, 1989.

Interior Department specialists said the DDT reduction schedule will spare the peregrine falcon from further decline everywhere but in California, where the bird is most vulnerable. All but six of the 80 active breeding pairs in the Pacific Northwest are there.

To protect the California flock, the EPA has required dicofol manufacturers to contribute $325,000 to a private "nest manipulation" program in which eggs are collected, incubated, hatched and returned to the wild.

Moore said the program will produce enough breeding peregrine falcons in five years to enable the birds to sustain themselves.