TWO HUNDRED and seventy-eight dollars. Not much money, especially these days. But for Lionel Thiboutot, a Maine lumber truck driver with a wife and eight kids to support, the $278 he received from the state's Aid to Families with Dependent Children program stretched his $490 a month salary enough to put food on the table.

So when the state's Department of Human Services cut back the family's welfare payments to only $64 a month in 1977, Thiboutot and his wife Joline sued to get the money back, claiming the state erred when it refused to count four of the children, Lionel's from a previous marriage, in figuring the family's aid.

The Thiboutots eventually won their plea in the U.S. Supreme Court. In 1980, the high court granted them their welfare payments and awarded their lawyer, former Legal Services attorney Robert Mittel, $5,600 in attorney's fees. The Thiboutots started getting their $278 again.

But now, a year after the Thiboutots' victory, conservative Utah Republican Sen. Orrin Hatch has launched a drive to bar people like the Thibotouts from having their day in court.

Hatch points to the Thiboutot case as the justification for a sweeping revision of one of the nation's key civil rights statutes, the Ku Klux Klan Act of 1871, now called "Section 1983" in lawyer's parlance. Cheering him on are local governments that claim it costs them too much to fight civil rights suits.

Originally enacted to quell widespread violence in the post-Civil War South, the law makes state and local governments vulnerable to financial liability when they commit unconstitutional acts. It has been used with increasing frequency to challenge actions on such controversial issues as police brutality, prisoners' rights, local zoning changes, and the rights of people who receive welfare, Medicaid, housing assistance and other federal benefits.

Revising Section 1983, even conservative concede, will radically curtail the rights of poor people dependent on social welfare programs by crippling a person's ability to sue local governments.

Hatch, new chairman of the Senate subcommittee on the constitution, introduced two bills this year designed to after Section 1983, and they are expected to be approved by the subcommittee by the end of October.

One Hatch bill would bar the use of the law for all but equal rights cases, and the second would immunize local governments from liability if they unwittingly violate a person's civil rights. Hatch will also add to the legislative package a third provision amending the Civil Rights Attorneys' Fees Awards Act of 1976, limiting the collection of attorneys' fees from municipalities when they lose a case. Attorneys' fees awards are now left to the discretion of the courts.

"Sen. Hatch is pretty anxious to have these bills passed," subcommittee staff member Peter Ormbsy says. "The amount of suits under 1983 is becoming a significant burden. They divert resources from services to legal departments." So far, Democrats on the Judiciary Committee have shied away from openly opposing Hatch's measures, while Republican Sen. Charles McC. Mathias of Maryland has introduced a bill that would broaden, not restrict, the use of the law.

Civil rights groups horrified by Hatch's proposal say his rewriting of the law would destroy a person's chief means of fighting back against big government's errors.

"This grossly tilts the balance of power toward local and state government," complains Ellen Josephson, lobbyist for the National Legal Aid and Defenders Association and a former Legal Aid attorney, says of the Hatch bills.

NAACP attorney Michael Sussman is even more critical of Hatch's proposals, saying the bills are the vanguard of a comprehensive Reagan administration campaign to destroy the rights of poor people. "These people don't believe in the safety net -- instead of having the courage to say that, they'll just withdraw the ability to enforce the law," Sussman fumes.

Approval of the Hatch bills by Congress would halt decades of arcane but spirited legal controversy over the scope of section 1983. Because the statute says only that it protects individual rights secured by the Constitution "and laws," courts have differed widely over what laws were meant to be included.

Hatch refused to be interviewed about his bills. But in congressional hearings this summer he said the Thiboutot case expands the scope of Dection 1983 and makes local governments liable if they violate any federal law ranging from noxious weed control to strip mining, regardless of whether it pertains to civil rights.

A host of governmental groups, including the National Association of Counties, the League of Cities, and the National Association of Attorneys General, heartily support Hatch's views. Cities, states and counties, they say, are being sued too often under Section 1983. The municipalities are also losing the suits too often, and as a result are spending too much money.

"They are being forced to settle suits which are arguably frivolous because of the costs of litigation," Martha Pedrick, attorney for the National Institute of Municipal Law Officers (NIMLO), says. "Nobody pays for those cost but the municipalities themselves."

Pedrick points to Arlington County as one recent victim of Section 1983. Sued over its policy of strip searching people arrested for minor infractions of the law, like eating a sandwich on Washington's subway system, the county was ordered to shell out $16,000 in attorney's fees to the plaintiffs, even though the county and state quickly changed the law and the case nver even came to trial.

One problem in the Section 1983 battle is that neither side has been able to quantify just how much the suits acutally cost, a fact critical to the municipalities' claim of a nationwide crisis in legal costs. Even Hatch's staffers say the numbers available make poor ammunition for a legislative dogfight, failing to identify how much money the suits actually cost cities or even how many Section 1983 cases are won or lost.

The 200 NIMLO member governments figured last year that over $4 billion in suits were filed against them. But civil rights attorneys like Josephson are quick to say NIMLO's numbers are falsely alarming, since they fail to acknowledge that most civil rights suits filed are disposed of with a simple request for dismissal by the local government.

"I don't think they have anything to support their claim," Josephson says. "Of course they don't like to be sued. Who likes to be sued?"

The municipalities' nervousness is compounded by a second 1980 Supreme Court decision, Owen v. City of Independent, Mo ., in which the court ruled that the city of Independence couldn't defend itself from a 1983 suit by claiming it acted in "good faith" when it unconstitutionally fired its police chief.

The broad inerpretation of the law in Thiboutot , the weakening of the municipalities' defense through Owen , and judges' generousity in doling out local government money to attorneys all demand congressional action, they claim.

Even Supreme Court Justic Sandra D. O'Connor has become embroiled in the Section 1983 controversy, supporting a limitation of Section 1983 at her Senate confirmation hearings last month and in a recent law review article.

Pointing to the federal courts' heavy caseload and Reagan administration budget trimming goals. O'Connor suggested that use of the law be limited "either directly, or indirectly by limiting or disallowing recovery of attorneys' fees."

Thiboutot lawyer Mittel, now in private practice in Portland, Maine, disagrees. The Thiboutot decision, he argues, breaks no new legal ground and certainly doesn't justify changing the law. "It was not a new question and it's not a new answer -- [the state's action was] just wrong. States ought to obey federal law," he says.

Sue Kellock, executive director of the Washington-based Equal Justice Foundation, has spent most of 1981 fighting the Reagan administration's plan to wipe out the Legal Services Corporation's $321 million annual budget. She says any attempt to restrict attorneys' fees awards in winning Section 1983 cases would accomplish virtually the same thing: discourage civil rights suits from poor people and public interest groups.

"The best way to eliminate suits is to eliminate attorneys' fees," Kellock states. "It's not too popular to say we're going to eliminate your right to sue, so instead they just eliminate your access to the system."