If a special court complies with Reno's request, it would be the first such prosecutor to be named in connection with the wide-ranging inquiries in Congress over campaign fund raising and political influence during the 1996 election.
Republicans say contributions to the Democrats may have played a role in Babbitt's decision in 1995 to reject a proposal from a group of Wisconsin Indians for a casino. Rival Indians who later contributed money to the Democratic Party opposed the casino as did the local community.
But Reno made clear in her request that the special prosecutor should limit the investigation to Babbitt's testimony on the casino issue, and not delve into broader campaign finance matters.
Babbitt said he was disappointed with the decision.
"If it's true that only an independent counsel can resolve a matter like this ... then I think the list of hidden costs one has to pay for public service has just grown a little longer," Babbitt said in a statement.
President Clinton expressed confidence that Babbitt would be cleared.
"I have known Bruce Babbitt for many years. He is a man of the highest integrity and dedicated public servant. I am convinced that when this matter is concluded he will be vindicated," said Clinton. "I look forward to his continuing service to the American people."
But Reno said in her request that there were "reasonable grounds" for further investigation by an outside prosecutor on whether Babbitt may have been untruthful to a Senate committee last October in connection with the casino decision.
Three other independent counsel investigations are under way involving the Clinton administration: Kenneth Starr's concerning the president and separate investigations of allegations of misconduct by former Agriculture Secretary Mike Espy and former Housing Secretary Henry Cisneros.
Babbitt, who has said his career of 23 years in public service is on the line, has repeatedly and strongly denied any misconduct involving the casino decision or in his explanations of it.
At the core of the investigation is a July 1995 meeting Babbitt had with Paul Eckstein, a longtime friend who at the time represented pro-casino interests.
Eckstein last fall testified at congressional hearings that Babbitt told him that Harold Ickes, then White House deputy chief of staff, had wanted the casino decision expedited. Eckstein also contended Babbitt made reference to campaign contributions by tribes opposed to the casino.
When Babbitt was questioned by Sen. John McCain, R-Ariz., in 1996, he disputed Eckstein's assertion. He also said he had never discussed the matter with Ickes.
But in October, Babbitt wrote Sen. Fred Thompson, R-Tnn., and later testified before Thompson's investigative committee that he, indeed, had told Eckstein that Ickes wanted a decision on the casino issue. He said he had done so "simply as a way to terminate the discussion" with the lobbyist and that, in fact, he never talked to Ickes.
At recent House hearings, Babbitt insisted he had told the truth to Congress in each instance.
"Both letters state that I never discussed the (casino) matter with Harold Ickes. In the McCain letter, I disputed Mr. Eckstein's version of our conversation. In the Thompson letter I provided my own recollection of that conversation," said Babbitt.
"I never spoke to Mr. Ickes about the Hudson matter and I shouldn't have given Mr. Eckstein any reason to suppose that I had," Babbitt said. "I regret the remarks. It was a mistake, but that's all that it was."
Written by Josef Hebert ©1998 The Associated Press. All Rights Reserved. This material may not be published, broadcast, rewritten, or redistributed