The Interior Department's Bureau of Reclamation, for 85 years the government's prime promoter of big dams, cheap power and cheap water, announced yesterday that it intends to retreat to the West, shed half its employes and wrap itself in environmental issues.

In a news conference more notable for its symbolism than its news, bureau officials acknowledged publicly what the agency's critics have argued for years: The West is running out of rivers to dam, and the dynasty of concrete has come to an end.

"Public values have changed over the years," said James W. Ziglar, assistant secretary of the interior for water and science. "We have to change from being a construction company to being a resource management agency."

Ziglar outlined a plan that calls for the bureau's Washington headquarters to move to Denver by January, reorganize itself and start shifting its priorities to management of ground water, improvement of water quality and toxic waste cleanup. The plan calls for cutting the 8,000-employe agency in half by 1998, when virtually all the projects in the pipeline are expected to be completed.

A decade ago, such a plan almost certainly would have triggered an avalanche of congressional rage, akin to the reaction that met President Jimmy Carter's infamous "hit list" of western water projects in 1977.

But the reaction from some western members of Congress yesterday was so muted as to be almost nonexistent.

"I don't see anything terribly wrong with it," said Rep. Morris K. Udall (D-Ariz.), champion of the Central Arizona Project. An aide to Rep. George Miller (D-Calif.), one of the bureau's most outspoken critics, said Miller's response was "a shrug, essentially."

Rep. Tony Coelho (D-Calif.), whose district is served by the Central Valley Project, raised one note of caution. "I'm all for reducing bureaucratic spending, but I'm not sure that is the bureau's motive here," he said. "Perhaps they are more interested in running away from congressional scrutiny."

Congressional approval is not necessary for the reorganization and transfer, although it could easily be blocked by almost any member of a mind to do so. As of yesterday, no one was scurrying to the fore.

The Bureau of Reclamation has been among the most powerful federal agencies for decades, its leaders sometimes better known in the West than the secretary of the interior himself. The agency spun western rivers into a web of wealth, and built, along the way, an almost unshakeable base of political support.

But the reorganization is the latest in a series of budget-tightening actions under the administration that have had the effect of reducing the bureau's political clout.

Three years ago, the administration had a plan to do away with the agency, blending it with the U.S. Army Corps of Engineers. The plan, backed by then-Office of Management and Budget Director David A. Stockman, was scuttled by several of President Reagan's California intimates.

But Congress did approve legislation requiring beneficiaries to foot at least part of the bill for new water projects. The new rules tended to tarnish the political gleam of federal dams and canals, and several of the biggest projects still on the books have been scaled back.

More recently, the bureau announced that it would stop counting the value of agricultural crop subsidies as a "benefit" in deciding whether a project justified its cost. The policy change was a response to complaints that bureau projects, by providing subsidized water to grow surplus crops, were exacerbating the farm crisis and costing millions of dollars a year.

Ziglar said the bureau was suffering from the "March of Dimes syndrome," referring to the charitable organization that was established to fight polio. When polio was conquered, the group switched its focus to birth defects rather than go out of business.

The bureau intends to focus on environmental restoration and water quality, including cleaning up water that has become polluted with salt, toxic metals and farm chemicals because of the irrigation projects that the bureau created.