The Reagan Administration's latest attempt to cut National in stitutes of Health, (NIH) funding was dealt a serious plow last week when the General Accounting Office (GAO), charged with overseeing federal expenditures, declared that the education violated the law.

In a report on the the matter, the GAO said the Office of Management and Budget (OMB) circumvented the law in January by directing the NIH--the largest source of Harvard's research funding--to finally only 5000 of the 5500 renewable one-year grants for which Congress had appropriated Fiscal Year 1986 money.

Under federal law, the executive branch--of which the OMB is a part--is not permitted to impound appropriations without Congressional approval.

Nevertheless, OMB ordered that 650 of the proposals receive a full two or three years of funding this year instead of 1500 additional year-long grants.

Under the OMB plan, only the 4350 remaining grants would be up for renewal, so that less money would be spent during the next two years.

Legislators and research lobbvists have claimed OMB circumvented Congressional intent.

The ruling, which was requested by the Senate Labor, Health and Human Services, and Education sub-committee on appropriations, found OMB broke the law because it did not have sufficient cause to extend the annual funding beyond the first year.

The Administration is consulting lawyers and may challenge the GAO findings, officials said. OMB spokesman Edwin Dale yesterday agreed that the tactics used to cut the funds were unorthodox, but added the department had "Serious legal doubts" about the GAO report which called for further investigation.

An NIH official who said he opposed the OMB strategy called the ruling "highly debatable," saying the gray area of "bonafide need" for the unusual multi-year funding could be left to the courts to decide.

A decision will be reached before July, when the first multi-year grants are scheduled to be awarded, Dale said.

NIH provided $70 million during the past fiscal year for scientific projects like the four-year old Huntingten's Disease Research Center.

Since the original CMB action. NIH has toughened requirements for funding eligibility, officials said.

The Medical School has 56 proposals for $11.7 million now before NIH review, according to a report released Monday by Harvard Vice President for Government and Community Affairs John shattuck.

The effects of the Administration's cuts on Harvard, should they be maintained, remain unknown, acording to the report