An energetic crowd of 350 rallied yesterday to protest a proposed layoff of 906 workers from St. Elizabeths Hospital, which hospital officials say could cause the facility to lose its accreditation.

Arthur Flemming, secretary of the Department of Health, Education and Welfare in the Eisenhower administration, D.C. Council member Wilhelmina J. Rolark (D-Ward 8) and other speakers decried attempts by the federal government to trim $25 million from the federal hospital's spending.

The rally was sponsored by the American Federation of State County and Municipal Employees, which represents nearly 3,000 members at the hospital.

"We need a firm commitment from the legislative and executive branches to keep St. Elizabeths as a model institution for our whole nation," Flemming said to thunderous applause and a standing ovation.

Rolark called the possibility of layoffs "cruel and heartless. We don't need to have our problems exacerbated," said Rolark, whose ward includes St. Elizabeths. "We already have the largest number of AFDC Aid to Families With Dependent Children recipients in the city and the largest percentage of females heading households."

"Unemployment in Ward 8 is disgraceful," Rolark said. "St. Elizabeths is a repository of great employment in an area that needs it badly."

"The streets of our nation's capital should not become a psychiatric ghetto," said Lewis Peeples, administrator of AFSCME.

"If this administration has a commitment to human needs and compassion, it can demonstrate that all in one place--St. Elizabeths Hospital."

A former patient, Lenwood Grant, now a laundry worker at the hospital, credited the facility with "literally saving my life."

Grant, who said he became hooked on drugs in 1966, said the staff "showed me I could deal with society without narcotic drugs." Grant added that plans to reduce the hospital's drug and alcohol programs as a cost cutting measure would be "disastrous."

The U.S. Department of Health and Human Services has said the hospital must lose 906 employes by Dec. 1 if neither the District or the federal government, which share support of the hospital, supplies extra money.

The hospital's current administrator, Dr. William Dobbs, has said the proposed hospital cuts will cost St. Elizabeths its accreditation within a year.

A final decision will be made after Congress returns from its August recess and debates final appropriations for the facility.

District officials have said they will not increase their share of the hospital budget from the $29 million currently obligated.

The federal government, which is paying $62.7 million for the hospital in the coming year, wants the District to up its share to $54.5 million.