Moderates within Nicaragua's victorious guerrilla movement formed the Sandinista Social Democratic Party today, saying that it will work for a Western-style democracy here.

In doing so, they raised a challenge to Marxists within the Sandinista guerrilla movement who have said they intend to work for a Communist-style "dictatorship of the people" in Nicaragua.

Organizers of the Social Democratic Party said today that it would establish ties with other socialist parties in Latin American and Europe.

Even before the party officially announced its formation at a press conference this morning, Interior Minister Tomas Borge criticized the new political group as potentially divisive. The Social Democrats' slogan is "Sandinismo, Si! Communismo, No!'"

It is expected that the Sandinista National Liberation Front, the armed guerrilla group which Borge founded and which led the revolution against Anastasio Somoza, eventually will form an "official" political party much further to the left than the Social Democrats.

Although the leaders of the front, as well as members of the five-member governing junta, represent widely differing political and economic points of view, they have shown a remarkable unity thus far in their efforts to rebuild after the devastating civil war that finally toppled Somoza in July.

The new government has, in the opinion of most observers, pursued a moderate course. For example, it has begun a program of agrarian reform and has nationalized the banking system while guaranteeing that private property not belonging to the Somoza family or its supporters will be protected in most cases.

The new government has also issued a provisional bill of rights and guarantees that provides the freedom to organize politically, speak and write freely and move without fear within and outside the country. The junta has also promised democratic elections within three to five years.

Within the National Liberation Front and the civilian government however, are dedicated Marxists who have made no secret of their view that the current phase of the revolution is simply a step toward creation of a "dictatorship of the people."

The Marxists have not yet formed a political party. But they are working through many of the Sandinista defense committees -- created originally during the war as neighborhood civil defense committees against the National Guard -- to attempt to persuade the poor to their view of how the political and economic system should develop.

The Social Democrats said today that they are in full accord with the political and economic decisions taken thus far by the new junta. The only clear difference that emerged was over the timetable for elections.

Wilfredo Montalvan, 34, the provisional general secretary of the Social Democrats, said the party believes that Nicaragua should be ready for democratic elections within three years. A longer period, he said, would be "too much."

The purpose of forming the party now, Montalvan said, is to lay the groundwork for a political party that can represent a socialist but democratic alternative to whatever party the Front or the Marxists may create.

"There are elements within the Sandinista National Liberation Front, the Marxist-Leninists, who are trying to convince the people that [Cesar Augusto] Sandino was a communist," Montalvan said. "This is absolutely absurd and false."

Sandino led a guerrilla army against the U.S. military occupation of Nicaragua 50 years ago and was ordered assassinated by the late Anastasio Somoza Garcia and others in 1934. Sandino believed in a democratic form of government that was nationalistic and anti-imperialistic, Montalvan said.

"We are insisting on a system that is authentically democratic while constructing a socialist system in Nicaragua," said Montalvan, a businessman and journalist who was arrested nine times over the years for opposing the Somozas.

"We are against all totalitarian regimes of either the right or the left," he said. "This is what we believe the Nicaraguan people were fighting for."