The correct option is C Morphallaxis by interstitial cells
Morphallaxis :
The process in which a fragment can regenerate the whole body of an organism is called morphallaxis.
Examples: Formation of a whole organism from a fragment by Hydra, Planaria and Amoeba.
1) Regeneration of transverse or longitudinal cut pieces of Hydra into complete Hydra. The lost parts are regenerated by the interstitial cells in Hydra.
2) Regeneration of complete worm from cut fragments of Planaria.
Epimorphosis :
The process of replacement or regeneration of lost body parts by cell proliferation of somatic cells followed by cell differentiation is called epimorphosis.
Examples:
1) Regeneration of tail or limb in Salamander.
2) Regeneration of intestine or alimentary canal in Sea cucumber after ejection of internal organs.
3) Regeneration of tail by lizards after self-amputation (autotomy).
4) Regeneration of injured arms of starfish.
Final answer :
(A) Morphallaxis by interstitial cells