A Prince George's County judge, over the objection of county prosecutors, sharply reduced the sentence yesterday of a Roman Catholic priest who sexually abused three youths from 1981 to 1985.

Circuit Judge Robert H. Mason reduced the sentence he had imposed on Peter M. McCutcheon from 25 years in prison to five years' probation, with the stipulation that he spend at least a year in a church-run treatment center and halfway house in Albuquerque.

McCutcheon, 35, had spent 13 months in the Maryland Diagnostic Center in Baltimore, part of the state prison system, after pleading guilty in December 1986 to five counts of sexual abuse.

Mason reduced the sentence on the recommendation of two state psychologists and over the opposition of Assistant State's Attorney Robert Harvey, who said the victims and their families are still suffering from McCutcheon's crimes.

"He is still a pedophile, still a potential danger to the community," Harvey said he told the judge. "This program won't guarantee he'll be out of the community."

Members of the two families were in the courtroom yesterday, as was McCutcheon, who sat silently throughout the proceeding.

Under the terms of the sentence, McCutcheon will be in the care of Foundation House, operated by the Servants of the Paraclite, a monastic order. He must stay there for at least a year and then participate in the order's work-release program, always escorted while outside the facility.

Other conditions of his five-year probation are that he take DepoProvera, a drug that diminishes sexual desire, not work in a situation that brings him into contact with children and make restitution to the families.

Mason set a restitution hearing for March 1, to assess the expenses the families have incurred for psychological counseling.

The initial sentencing in 1986 had followed five hours of emotional testimony, with parents of the victims accusing McCutcheon of "manipulating and confusing" their sons, and doctors and counselors stressing that McCutcheon, who had been assigned to parishes in Waldorf and Chillum, was a pedophile, alcoholic and drug abuser in need of therapy.

"It's very important for {the victims and their families} to see you walk out of here in handcuffs on the way to jail," Mason told McCutcheon then.

Yesterday, however, Mason said it was time to reconsider the severity of his sentence and assign McCutcheon to a program that would help cure him.

Had McCutcheon not been a priest, Mason said, he would probably be free by now without treatment for his illness. He said the penalty for such an offense normally ranges from probation to four years.

McCutcheon was charged with sexually abusing the three teen-age males in five incidents in 1981 through 1985. None belonged to parishes where he had worked.

McCutcheon was ordained in 1979. He was assigned to St. Peter's Parish in Waldorf from 1980 to 1982, and to St. John the Baptist de LaSalle in Chillum from 1983 to 1986. He worked mostly with elderly persons in the parish and helped tenants in the Chillum Heights apartment complex get legal help and relocate when 119 families were evicted in 1985. After being charged, McCutcheon was suspended from the priesthood.