A group of Knoxville, Tenn., citizens filed suit in U.S. District Court here yesterday to block federal funding of an energy exposition that would displace a low-income neighborhood in downtown Knoxville.

The suit also implies that President Carter used his influence to obtain $12.4 million in federal funds earmarked for the project.

According to the suit, Jake Butcher, an unsuccessful Democratic candidate for Tennessee governor in 1974 and 1978, who has a financial interest in the energy show, met with Carter Oct. 3, 1978, to discuss the exposition, which would open in 1982 and operate for six months.

On that same day, Carter announced the federal funding, including a $5 million grant from the Department of Housing and Urban Development -- a grant that HUD officials had refused to make twice before, according to the suit.

All federal grants for the exposition should be revoked because the exposition's environmental impact on the surrounding community has not been thoroughly investigated, the suit charges.

The $5 million HUD grant also should be disallowed because the money is from funds reserved for "severely distressed" cities and Knoxville ranks 267th on a list of 300 distressed cities, according to the suit.

In May 1978 HUD Assistant Secretary Robert C. Embry told Frank Moore, presidential assistant for congressional liaison, that HUD had rejected Knoxville's request for the energy exposition because the project "did not meet the legislative intent" of the grant program.

Embry added that 62 businesses employing 1,377 people would be displaced by the project and that there were strong community objections to the development.