Santiago Carrillo, the chain-smoke general secretary of the outlawed Spanish Communist Party, sits in the living-room of his modest Madricd apartment framed by a Picasso cowboy drawing and a stuffed Walt Disney Bambi.

He explains his party's non-revolutionary line in soft-sell Eurocommunist terminology while bodyguards end a game of chess and leave the room. Other party leaders who spent a good part of their lives in jail during the long Franco anti-communist dictatorship come and go through a door guarded by a squad of young Communists.

The scene demonstrates in deep relief tha political changes that have come to Spain since King Juan Carlos succeeded Franco 13-months ago. It also underlines the power and determination of Carrillo, 61, a former Socialist, and the party that he had led from underground into the open.

With a shrug of the shoulders the balding, gray-haired Carrillo relegates to the past has arrest last month for operating clandestinely in Spain for 319 days despite a government ban against his presence in the country. It's clear that he considers the ordeal part of being the leader of the Spanish Communist Party. He awaits trial for heading an "illegal association," but he expects to get an identity card and passport in the near future.

His current concern, however, is with legalization of the Communist party proscribed in 1939 after three years of nightmarish civil war. He says: "I have assurances that both the King and Premier Adolfo Suarez would like to legalize the party but can't do it at this time because of the residual power of the rights."

Unless the party is legal and free to participate fully in next spring's parliamentary elections, he warns, "There will be turmoil in the streets." He gives Suarez credit for being an intelligent man" who must be aware that there cannot be a peaceful transition to a constitutional monarchy without "recognition of the Communists." To exclude the Communists from Parliament "would be folly," he adds.

The Communist chief turns discreet when asked about Communist contacts with government officials. But he admits that democratic politicians have transmitted his views to the monarch and his premier.

While he was underground in Spain masterminding party strategy, Carillo, son of an Australian miner, dined at the home of Jose Maria de Areilza, aristocratic foreign minister of the King's first government. Carillo also confered with Socialists liberals, Christian Democrats and Moaists as well as with Basque, Catalan and Galician autonomists.

Just after leaving Carabanchel prison on bail, he participated in a meeting of the opposition's committee that will negotiate the terms of an electoral law with Suarez. The negotiation came to a standstill in the 10 days that Carillo was in jail.

The Communist will not be represented in the opening talks between Suarez and a subcommittee of four opposition leaders. Carrillo explains that the party excluded itself from the initial contacts "to ease the way." But he insist, "our turn will come."

Carillo can now move freely throughout Spain. He no longer needs to go around disgusted in a wig. But the party - and the security conscious government - fear for his life.

A police station wagon is parked across the street from the apartment house where he lives with his wife and three grown sons - all educated in France where he lived in exile until he slipped into Spain last February. Party militants sit in cars outside the entrance, where a Christmas tree glows with lights. In a strange alliance, these traditional enemies are jointely protecting the Communist leader.

The curtains in the living-room are drawn. Carillo says he has received many threat against his life, but he does not appear to be concerned Many francoists allege that he was resposible for hundreds of civil war murders. Carillo has threathened to sue for libel if the "defamation campign" perists.

There seems to be no question that he is the party boss, that his ideas prevail, that the mixture of pragmatism. Eurocommunism, and independence from Moscow which he advocates are accepted by the bulk of the party. He claims that the number of present card-carrying members is 200,000. He says the party expects to issue another 100,000 cards in the next few months.

"We are strong" he says. "I'm not speaking of percentages. i'm speaking of numbers. And we're not just a party of peasants and workers."

he attributes the present power of the party to the leadership of "my generation, which fought in the civil war." He claims that "only we have the moral and political authority to lead at this time the struggle for democracy. The postwar Communist leaders have a place, but they could not have been educating and preparing the party for this moment since 1956. A chance of leadership to please the government is not what the party needs."

Carrillo made his mark while leading the party from exile in France. He set forth the strategy that his party has followed in a book of interviews, "Tomorrow Spain," published in France by revolutionary tactics and guerilla warfare.

He was among the first communists in Western Europe to advocate independence from Moscow and got involved in resounding polemics with the Soviet Communists.

He is highly critical of the political and economic tactics of Portuguese Communist leader, the hardline Alvaro Cunhal, followed the Portuguese revolution in 1974. He is closer to Portugal's socialist premier, Macio Soares - "my friend" - than to Cunhal, he says.

Spanish democrats appear to like Carrillo's style. Many express the belief that he is a man with whom they - and the government - can make a deal. Yet mistrust of the party remains because of its discipline, its strength, and its attempts to broaden its base by including Christian Marxists. The central committee includes former Jesuit.

He takes a soft line in the international field, too. He contends that the party favors U.S. and foreign investment, so long as "no attempt is made to influence Spain's Foreign and domestic policies."

He is for retaining the U.S. military presence in Spain "so long as the Soviet Union maintains bases on foreign soil." But he is adamantly opposed to Spain's entry into the North Atlantic Treaty Organization. "We'll vote against joining NATO in Parliament, and we'll cmpign against NATO all over the country," he says.

He says that not even Marxist theorists have come up with answers to the crises currently facing industrial and underdeveloped nations. There is no question that he is a dedicated Communist. But he seems to realize that if the party is to get a share of power in Spain, it must speak softly, when challenging the government.