Sen. Edward M. Kennedy (D-Mass.) urged liberals yesterday to "stop confusing social progress with progress in the war against crime" and take a new look at what the country needs for an effective criminal justice system.

Kennedy's appeal, which seems likely to cause a stir among those who regard him as one of the Senate's leading liberal spokesmen, came in a speech before the Center for the Study of Democratic Institutions in Chicago.

It appears to be the opening salvo in a campaign by Kennedy to win the backing of liberals for enactment of a far-reaching overhaul of the federal criminal laws.

After years of hearing and drafting, legislation to create a new federal criminal code - the so-called S.1 Bill - was introduced in Congress in 1975. However, it became bogged down in bitter disagreements between liberals and conservatives.

Now, Kennedy and Sen. John L. McClellan (D-Ark.), a leader of conservative Senate Democrats, are working with Attorney General Griffin B. Bell on a new legislative proposal for overhaul of the criminal code.

Congressional sources say that both senators hope to avoid the problems that overtook S.1 by starting early to urge liberals and conservatives to make compromises about the proposed code's potentially sensitive provisions.

Kennedy's Chicago speech contained unusually blunt criticism of "well-intentioned people who claim that crime can be controlled if we would only demolish city slums and end poverty and discrimination." The phrase seems to be aimed at some civil libertarians and minority groups that often raise sociological arguments in response to calls for a tougher law-and-order stance by government.

Although he stressed the need for continued rapid social progress, Kennedy warned against an attitude of "no crime reform until society is reformed." The nation has an urgent need to start making the system of justice fairer and more workable through reform of a "federal criminal code that is a disgrace," he said.

There is a great need to modernize outdated laws such as those dealing with rape and criminal insanity, to correct omissions that do not deal with current problems like consumer and election fraud or environmental pollution, and to overhaul methods that don't seem to work, such as the current system for sentencing offenders, the senator said.

He noted those provisions in S.1 that drew fire from liberals - restrictions on the use of leaked government material by the press, erosion of insanity defenses and extentions of the death penalty and governmental wiretapping authority.

Because of these features many people saw S.1 as promoting, not eliminating injustice" Kennedy said. But the proposed new legislation will "modify or eliminate entirely the major objection features of S.1," he added.