A novel that has never come near any best-seller list and is unavailable in virtually all Washington bookstores, "How German Is It," by Walter Abish, will be honored today as the best work of fiction by an American published last year.

Selected by a blue-ribbon panel of judges who are themseleves among America's most respected writers of fiction, "How German Is It" will be the first recipient of the PEN/Faulkner Award for Fiction. The award, according to its founders, represents an effort by American writers to establish one award that will be based entirely on literary merit, as judged by practitioners of the craft, rather than on commercial considerations or literary politics. It will be formally presented this weekend in ceremonies at the University of Virginia in Charlottesville.

The strongest feature of the PEN/Faulkner Award is the identity of its panel of judges. For the first year, they were William Gass, Elizabeth Hardwick and Tim O'Brien, assisted by an advisory panel that included Saul Bellow, William Styron, Alison Lurie, Wallace Stegner and Peter Taylor.

Abish, born in Austria in 1931, grew up in China and also lived in France, Israel and England before moving to the United States in 1958. He began writing poetry when he was in Israel but did not start writing serious fiction until he had reached the United States. Around 1960, he quit his job as a city planner to become a writer and teacher. He is the author of one novel "Alphabetical Africa" a book of poems and two other books of fiction.

Now a lecturer in the English department at Columbia University, Abish is about to begin his next novel with the aid of a Guggenheim grant. With the $2,000 PEN/Faulkner prize, he said, "I hope to buy a new typewriter. I've been working on an old IBM, and I can't wait to get a new Selectric 3."

Abish said that the PEN/Faulkner Award "represents much more than a prize; it's really literary history. It's absolutely exhilarating to be nominated by people I so profoundly admire. The Guggenheim is marvelous; it's money and it's prestigious, but this is so special that I simply can't find words for it. This is a kind of a peak."

"How German Is It," which deals with Germany after World War II, was published by New Directions, a small company that specializes in poetry and fiction of high literary quality and usually of nontraditional style. It publishes mostly American writers, but also has a high proportion of works in translation, and has published the early fiction of many authors who later became well-known -- Vladimir Nabokov, for example. A check of major Washington bookstores yesterday turned up copies of the book at only one of them: The Maryland Book Exchange. In an enthusiastic review published in The Washington Post last November, novelist/critic Paul West suggested that it should be read three times, "once for story, then again for the personification of Germany, and then a third time to fill in the lacunae."

Tim O'Brien, novelist, winner of a National Book Award and a member of the panel of judges, said that he had agreed to the considerable labor of being a judge because "it seemed to me that frequently awards were given to books that didn't match my standards of excellence . . . I just wanted to see good writing recognized."

The circus atmosphere surrounding the establishment last year of the American Book Awards was what triggered O'Brien to support the new award project.But other participants and observers were critical even of more established and respected awards. "I'm always surprised when someone good gets a Nobel," said critic Susan Sontag. "It happened last year, probably by accident. They wanted to help Poland, and it just happened that a great writer got the prize. Maybe, if we knew more about the sciences, we'd find that the best scientists don't always get Nobel prizes, either."