A major new fiction award will be given for the first time April 18 at the University of Virginia in Charlottesville. Called the PEN/Faulkner Award for Fiction, it will be given annually for a work of fiction by an American citizen that is judged best by a small jury of the writer's peers.

Its chief distinction is not in the amount of money involved ($2,000) but in the identity of the advisory board and the three-person panel of judges that will make the final selection. The intention of the sponsors, the PEN American Center and PEN South, is to set up an award that will be the American equivalent of France's prestigious Prix Goncourt.

Judges of 1980 fiction, who have been examining some 230 candidate books since mid-August to select five finalists, are William Gass, Elizabeth Hardwick and Tim O'Brien. They were assisted by suggestions from an advisory panel consisting of Saul Bellow, William Stryon, Alison Lurie, Wallace Stegner and Peter Taylor.

The establishment of the PEN/Faulkner Award represents the third major reaction of the American literary community to the death of the National Book Awards several years ago, and in some ways the most significant. Previous reactions have been the establishment of awards by the National Book Critics Circle, representing the collective opinion of the nation's book reviewers, and the American Book Awards, which were established by the publishing industry and launched last year in a ceremony that seemed to be trying to match Hollywood's Academy Awards.

The following is a list of the five 1980 nominees, with brief extracts from the citations that accompany the nominations:

"How German Is It," by Walter Abish (New Directions). "The irony is . . . coolly controlled, the satire . . . cutting."

"The Transit of Venus," by Shirley Hazzard (Viking):. "A work that combines telescopic breadth with a microscopic precision."

"The Second Coming," by Walker Percy (Farrar, Straus & Giroux). "A moral drama of great intelligence, beauty, and lasting significance."

"Alberration of Starlight," by Gilbert Sorrentino (Random House). "Gilbert Sorrentino has managed to invest a single, rather commonplace event . . . with a desperate and aching significance."

"A Confederacy of Dunces," by John Kennedy Toole (Louisana State University Press). "A strange, comic invention . . . written in the 1960s and, after the death of the young author in 1969, was still unpublished. . ."