A federal judge ruled yesterday that the Environmental Protection Agency violated the law last year by permitting Velsicol Chemical Corp. to exhaust existing stocks of chlordane, the nation's most popular termite killer, in exchange for the company's agreement to stop production of the cancer-causing chemical.

Declaring such negotiated settlements illegal, U.S. District Court Judge Louis F. Oberdorfer blocked a common EPA shortcut for getting rid of harmful pesticides without going through the costly, tortuous procedures required by law.

Oberdorder ordered the agency to stop sales and use of chlordane products by April 15, including termiticides containing the chemical that are produced by other companies.

An EPA attorney said that the ruling will not affect the Velsicol settlement -- the company had already agreed to stop sales of chlordane by April 15 -- but that it "takes away an extremely valuable weapon" in regulation of dangerous pesticides. The agency is considering an appeal, he said.

Oberdorfer said the agency's action was "arbitrary, capricious and an abuse of discretion" in violation of the Federal Insecticide, Fungicide and Rodenticide Act (FIFRA) with which the EPA regulates pesticides.

FIFRA requires that the agency determine public health and environmental risks before allowing pesticide makers to sell off existing stocks of canceled products, including those voluntarily withdrawn from the market. EPA says chlordane is a "probable human carcinogen" and can cause liver and nervous system damage.

The decision to permit continued sales of chlordane was "not adequately supported or rationally justified," but was "for a price" -- a halt in chlordane production, Oberdorder said. "This, FIFRA does not countenance," he concluded.

Velsicol, the sole U.S. manufacturer of chlordane, agreed in August to stop production of the chemical until it develops safer application techniques. The agreement came within hours of a news conference at which the EPA was expected to announce a ban on the termiticide, which is used on 700,000 homes every year.

The agency, in turn, agreed to permit the selloff of existing supplies, then estimated to total two months of normal sales. Officials said the deal assured a quicker removal of chlordane. Velsicol could have appealed a ban, opening up an administrative process that can take years.

Environmentalists oppose such tradeoffs involving pesticides that are considered dangerous enough to warrant a ban. The National Coalition Against the Misuse of Pesticides (NCAMP) filed suit against the EPA to stop the selloff of chlordane, leading the agency to amend its Velsicol agreement so that sales would end April 15.

Velsicol spokesman Donna Jennings said yesterday that the April 15 deadline in Oberdorfer's ruling leaves the EPA settlement intact. She called the existing stocks provision "extremely important" in moving the firm to settlement.

Jay Feldman of NCAMP said that the ruling should force the EPA to adopt new procedures to quickly get rid of dangerous pesticides. The agency's preference for negotiated settlements, he said, "compromises public health" in a manner unique to regulation of consumer products, such as food, drugs and automobiles.

Bob Perlis, an EPA attorney in the chlordane case, said the agency negotiates similar tradeoffs for about half the harmful pesticides taken off the market. The settlements represent the fastest and cheapest method for protecting the public, he said.

Under FIFRA, the agency can cancel a pesticide, but only after hearings and appeals that can take five years while the product remains on the shelves. For pesticides considered to pose imminent health dangers, the EPA can impose emergency suspensions that freeze sales and production. But the agency may have to defend its action in court and, if upheld, pay for the disposal and storage of the chemical and must reimburse the manufacturer for lost profits.

"Ultimately, its a bad decision for the environment," Perlis said of yesterday's ruling. "What the judge is doing is taking away the agency's flexibility. For chlordane, we'd be in the middle of cancellation hearings, chlordane would still be manufactured and there would be a lot more of the stuff out there."