A group of 27 writers from around the country has written to the National Endowment for the Arts protesting what they call "continuing instances of favoritism in the awarding of literature grants and fellowships."

The group, which includes longtime critics of the Endowment and several well-known writers including poet Robert Bly, asked that an outside committee of "experts" be appointed to "evaluate the programs and priorities of the Endowment literature program." The letter is addressed to NEA chairman Livingston Biddle, who said yesterday that he was "aware of the letter and its importance."

The protesting group says that the catalyst for their action was the awarding last fall of 274 $10,000 creative writing fellowships -- grants given out every two years to writers to pursue whatever kind of writing they want for a year. "One literary clique got wholesale awards," said local writer Eric Baizer, who circulated the complaint letter for two months collecting signatures.

Baizer is the former co-editor of the local literary magazine MOTA (Museum of Temporary Art) and a longtime critic of the NEA. He once applied for a $1,000 NEA grant to write a book but was technically disqualified. (He has no complaint about the disqualification.) Baizer claims that there was favoritism among some of the five poetry panelists who made recommendations on the 1979 grants.

Among the panelists was Ron Padgett, the poetry director of the St. Mark's Poetry Project, in New York's Bowery section. "More than a dozen of those writers connected with St. Mark's got grants," Baizer said yesterday.

Baizer cited a number of names, some connected with the project and some not, who were awarded projects and who are also, he claimed, either friends or associates of Padgett's. One example is fellowship winner Maureen Owen, who helps direct the St. Mark's project.

"I know [Padgett] didn't participate in the panel discussion on that person," said David Wilk, the director of the NEA literature program.

Padgett, who was traveling yesterday, was unavailable for comment.

NEA guidelines for avoiding conflict of interest stipulate that any panelist personally connected with an applicant should neither comment on the submitted manuscript not participate in the discussion. But drawing the line on conflict of interest can be difficult.

Baizer said that Lynn Hejinian, a small press publisher and panelist, was on the panel that discussed -- and funded -- three people whose work she had published. The three, according to Baizer, were Clayton Eschleman, Ron Silliman and Barrett Watten. The NEA confirms that they all got fellowships.

"I think she was in the room when they were discussed," said Wilk. "Our legal counsel said that was not a conflict of interest. And there were others she published who did not get funding."

Wilk added that there were other times during the poetry panel discussions when Hejinian left the room during discussions of people who had published Hejinian's work.

But as for the three grant recipients she published. Wilk said, "Maybe if we had to do it over again, she would have left the room. Because some people have made it clear to us that this did bother them. We and she have become sensitized to it."

Wilk said there is a general problem exactly defining conflict of interest. "NEA has told us that more people are uptight with what we do in our program than they are with any of the others.

"Panelists are going to have friends," said Wilk. "Ron [Padgett] did not participate in a number of discussions when he was aware that there might be certain problems. But if he had disqualified himself for everyone he knew, I don't think he could have voted at all.

"Our panelists consist of peers," said Wilk. "They're on the panel because of their literay expertise. If you force them to disqualify themselves for social reasons, they would never be able to do the job they were there for. What are you going to do if a writer is well-known and has friends?"

In 1979, out of 3,750 applicants for the creative writing fellowships NEA funded 274.

Some panelists are solicited and some apply and are accepted. They are reviewed for "geographic balances, stylistic balances, men and women," according to Mary MacArthur, assistant director of the literature program. Biddle makes the final approval of panelists.

The NEA's literature program has been criticized before. But, Biddle said yesterday, "I feel that in the 2 1/2 years I've been chairman. I've made a great effort to make the panel system as fair as possible.But we can always improve. I would want to consider any step that would improve the Endowment. Therefore, I would take [this letter] into careful consideration."