WASHINGTON (AP) _ The Energy Department has cut off funding for a Louisiana ethanol plant owned by the bankrupt holding company of Saudi arms dealer Adnan Khashoggi, a department spokesman said Friday.

The department will be forced to repay $67.4 million in construction funds that have been lent over the past year and a half by a consortium headed by the Bank of New England, said Douglas Elmets, the department's press secretary.

In 1985, the department approved $78.9 million in department-guaranteed loans for the plant.

The New Iberia, La. plant, under terms of its loan, was required to come up with $6.5 million in capital to start up the plant this month. The plant, Agrifuels Refining Co., is part of the Khashoggi empire. The parent company, Triad America Corp., which is based in Salt Lake City, recently filed for protection from creditors under the Federal Bankruptcy Act.

Elmets said the department notified Agrifuels that it will no longer approve disbursements of funds for further construction at the plant, which was 90 percent complete.

Khashoggi has said he advanced $30 million to $35 million to back the secret U.S. arms sales to Iran and he lost $10 million on the deal.

He says he has $103 million at stake in the ethanol plant.

Last week, the department paid $126 million to rescue an Indiana ethanol plant that was unable to make it loan payments, the largest default for the problem-plagued industry.

The New Energy Corp. plant, South Bend, Ind., was one of the projects that received a government-backed loan and was the largest of all the ethanol plants. Earlier this year, it was unable to make $1 million in interest payments.

As a result, the department, as guarantor of the loans, was required last month to pay $123 million in principal and $3 million in interest to the banks holding New Energy's loans.

A third Energy Department project, the Tennol ethanol plant in Jasper, Tenn., has been unable to operate at full capacity because of design problems. It received $64 million in government-backed loans in 1984.

Ethanol, derived from corn, once was touted by the government as an alternative to gasoline. In the early 1980s, the Energy Department guaranteed $269 million in construction loans for three major ethanol projects.

But more recently, the alcohol fuels industry has been buffeted by the falling price of oil and an anti-ethanol campaign by some oil producers.

Ethanol is currently used as an octane-booster in some brands of gasoline. Similar products, composed of one part alcohol to nine parts gasoline, were formerly marketed as ''gasohol.''