SALZBURG, AUSTRIA -- The Guggenheim Museum, able to display less than 5 percent of its vast modern art collection on existing premises in New York and Venice, has announced plans to open a major new branch deep within a rock mountain looming over this historic city.

The astonishing subterranean building, designed by Austrian architect Hans Hollein, is likely to rival Frank Lloyd Wright's spiral creation on New York's upper Fifth Avenue as the unmistakable architectural emblem of the Solomon R. Guggenheim Foundation.

Many critics regard it as the best work yet by Hollein, 1985 winner of the Pritzker Prize for architecture. "If built, this will be one of the great buildings of the late 20th century," said Guggenheim Foundation Director Thomas Krens.

Models of the project are being displayed in conjunction with this summer's Salzburg Festival, where the Guggenheim on July 26 presented results of a study concluding that the project was financially and technically feasible.

With his design inside the Moenchsberg rock, Hollein has created a treasure chest for art that will be nearly invisible from the outside but will comprise an interior of stunning drama. It will provide museum visitors with a unique spatial experience, one that will be surprisingly uplifting despite its setting beneath the mountaintop.

The building's centerpiece is a spectacular atrium half again as tall as the one Wright created in New York. Here the spiral ramp is carved into the rock, beginning at the same diameter as the one ascending from Fifth Avenue. This subterranean atrium gives off onto a series of interlocking chambers, many illuminated by natural light splashing down into the hollowed-out Moenchsberg and alleviating any cavelike feeling or sense of claustrophobia.

The building, with a total floor area of 190,000 square feet, is expected to cost $80 million and attract more than half a million visitors annually. Culture Minister Hilde Hawlicek gave the project her formal endorsement at the festival's start, and completion is scheduled for 1995 if it gets a final go-ahead from local authorities, and the Austrian government agrees to provide the funding.

But it also faces criticism from some Salzburg residents, worried that their picturesque city is already being spoiled by hordes of tourists. Herbert Fux, a Green Party member who represents Salzburg in the national parliament, is campaigning against the project, calling it an environmentally unsound "mausoleum."

"The idea and architecture of Hollein is most attractive. The question is whether ... it is really necessary or opportune to attract more tourists," said Hans Landesmann, a member of the Salzburg Festival's board of directors.

Museum supporters argue that it will bring a much-needed infusion of visual culture to a place that thrives primarily on its musical heritage. "It would be totally unrealistic that a project on this scale, coming into a city of this particular definition, is going to be easily understood and immediately embraced by everybody," Guggenheim Director Krens said in an interview. "I think the objections that are being expressed are healthy and indeed necessary to the overall project."

The Guggenheim, already engaged in a controversial addition to its New York building and working to expand the Peggy Guggenheim Collection in Venice, plans to exhibit items from its permanent collection in Salzburg on a rotating basis.

As a foretaste to convince Austrians that the project should be realized, the Guggenheim is currently displaying 40 outstanding works from its collection at the Residenz, the former palace of Salzburg archbishops. The pieces are by Wassili Kandinsky, Pablo Picasso, Constantin Brancusi, Fernand Leger, Robert Delaunay and Franz Marc.

The design for "the museum in the rock" was originally Hollein's entry in a city-sponsored competition for a structure to house Salzburg's Carolino Augusteum art collection. But a local citizens committee succeeded in persuading Krens to take a look at Hollein's plans, and he was instantly convinced, almost solely on the basis of the design, that he should consign Guggenheim's second European branch to the interior of a mountain.

"I believed within moments of seeing it that this was a great building," said Krens, "and I also saw opportunities for space that maintained the integrity of the art."

Hollein easily rose to the challenge of working within the rock. "I did not find it a constraint," he said in a separate interview. "There are constraints with every building -- you have the size of a lot in other cases. ... There's a completely different way of working in the rock. And I think that is the success of this project to have discovered this.

"My project is not an additive project, as a usual building you would do on the surface, but it's a subtractive way to work. You can cut out wherever you want, within the constraints of rock mechanics. ... Here you can have a very different approach. Also, I wanted to have something that has to do with the rock ... to have something of the genius loci."

To achieve this, Hollein has left large portions of carved gray rock exposed -- at the main entrance, in the central atrium and auditorium, and at intervals along the circulation route, where sunlight will enter through skylights 140 feet overhead.

Other areas devoted to display of the collection will be in a neutral second shell constructed within the Moenchsberg, with artificial lighting, where one is likely to find an atmosphere more of New York than of Salzburg. But the building remains in harmony with its Austrian location, and the grand formation of many rooms echoes the works of Fischer von Erlach and Lukas von Hildebrandt in Salzburg's old town.

At the New York Guggenheim, one enters at street level, ascends by elevator to the pinnacle of the coiled ramp and walks downward to view the artworks. Salzburg will be the opposite. Visitors will enter the base of the Moenchsberg museum from the narrow thoroughfare known as the Getreidegasse, a few hundred yards from the house where Mozart was born. The procession will be through the series of gallery chambers preceding the central atrium and then upward to a gigantic glass dome, along the ramp and by a series of staircases.

Ending their tour of the museum, visitors will step out onto the open top of the Moenchsberg, with its view of the spires and domes of Salzburg below and the green mountains beyond.