The Environmental Protection Agency said Friday night it would not approve construction of the Two Forks Dam project in Colorado, the largest non-federal water project in the West.

The agency's assistant administrator for water, LaJuana S. Wilcher, said she would uphold the recommendation of EPA's Denver office to bar construction of the 615-foot dam just downstream of the confluence of the South Platte River and its North Fork.The city of Denver and 40 suburban water providers sought approval to construct a 359-billion-gallon reservoir southwest of Denver to meet water needs well into the next century. The Army Corps of Engineers said in March 1989 it would grant a permit to dam the river, subject to EPA review.

Conservationists opposed the project because it called for flooding 30 miles of scenic river and ruining 14 miles of top-class trout fishing.

Denver proposed a smaller, 147-billion-gallon reservoir and a package of measures aimed at minimizing harmful environmental effects.

"The applicants made a good-faith effort to downscale the project size and compensate for the loss of wetlands and aquatic resources," Wilcher said in a statement.

"However, the smaller project would still flood 24 miles of freely flowing, scenic stream and almost 11 miles of gold medal trout fishery. . . . It would inundate an area of unquestionable natural beauty that provides a diversity of fishing and recreational opportunities and a rich aquatic habitat close to the Denver metropolitan area."

Before EPA's announcement, both sides agreed that the expected veto by the agency would not end the battle.