FOR MORE THAN seven years a battle has been raging in New York over whether or not to build a controversial 12-to 16-lane stretch of interstate highway where the crumbling 6-lane West Side Highway now sits. The plan, known as Westway, also involves a massive dredging and landfill project into the Hudson River. At a total projected cost of $1.7 billion -- $6,400 per inch -- Westway would be the most expensive highway ever built. Mayor Koch and Gov. Carey both ran on strong anti-Westway planks and then reversed their positions when in office.

The controversy is of more than local interest because 90 percent of Westway's cost -- $1.5 billion -- would be federal funds and because two national policies are at stake: long-range transportation strategies to save oil and the improvement of urban air quality up to minimally healthy levels.

The issue now being debated is whether funds for Westway should be used instead to halt and reverse the accelerating decay in New York's mass transit system. This could be done under a relatively new provision of the Federal Highway Act that allows local jurisdictions to trade in their highway money for mass transit funds.

If the $1.5 billion were spent on mass transit, it would go a surprisingly long way. For example, it should be enough to repair the existing highway (about $50 million) and then to replace subway tracks to reduce noise, wear and lurching; modernize the aging subway signal system to cut travel time and delays; air-condition subway cars; modernize subway repair yards; and renovate station walls, ceilings, floors and lighting and install television surveillance systems to curb crime. All of this would cut maintenance costs, increase productivity, improve safety and raise the hope of ending the loss in ridership that has led to service cuts and soaring deficits.

Back in 1974, Gov. Carey felt this way about Westwood: "I regard the concept of a huge truck-laden interstate highway in the West Side corridor as a planning and ecological disaster. . . . It is . . . incomprehensible that a plan to increase through truck traffic and greater vehicle entry into Manhattan is being sponsored by the state at the very moment that city street traffic is already congested to the point of immovability, and air pollution is already way above federally acceptable standards.

We couldn't put it better, except to add that since 1974 a major new element has been added: a realization of the depth of the energy crisis and of the country's continuing long-range need to cut its oil use by reducing reliance on the automobile and rebuilding energy-efficient systems for mass transportation.

To us, the advantages of trading in the Westway project for a revitalized transit system are overwhelming. This is so both for the city, 80 percent of whose workers use mass transit to get to work, and for the value of demonstrating that the nation is no longer wedded to a single-minded reliance on multi-lane highways that undercut its current energy and air-quality goals.