I found out that manual network interface configuration should be done in /etc/dhcpcd.conf, not in (/etc/network/interfaces). Using the example right from the config file I added the following to the /etc/dhcpcd.conf file:
interface eth1 static ip_address=192.168.0.10/24
The goal is to restrict eth1 interface to LAN only, so it does not connect to the internet. For that I intentionally omitted the static routers line, which I assumed was equivalent to the gateway specification in the /etc/network/interfaces file. However, PI still can connect to the internet - so maybe the "unspecified gateway" was defaulted and automatically added by the system?
I saw some suggestions to use the firewall, but I was hoping that there was a way to configure this specific interface through the network configuration file. I still want other interfaces like eth0 to be able to connect to the internet, so blocking WAN access through ufw may not be the best solution. Any suggestions on how to restrict eth1 interface to LAN only?