Sensitive U.S. intelligence information is being handled under a new system that effectively cuts off most congressional, military and other government officials, sources familiar with the system said yesterday.

The new system, ordered by President Carter Jan. 7, installs a classification called "royal" above the previous highest classification of "top secret," the sources said.

The "royal" system is considered highly unusual by the intelligence community, the sources said, because it is vague and general in scope and is not associated with protecting sources or intelligence collection methods.

The sources, all of whom deal daily with extremely sensitive intelligence, contended the "royal" classification is intended primarily to protect politically sensitive information.

The real effect, they said, is to protect President Carter from potential embarrassment.

An administration spokesman said, however, "Those allegations are totally false."

A White House press office spokesman said that "royal" is part of a classification system that is not yet in use.

"It's part of a new and still unimplemented system for handling extremely sensitive classified information," the spokesman said. "Within that system, 'royal' is only one of many designations."

The administration spokesman apparently was including "royal" in the category of "code name" intelligence classifications.

Normal intelligence information is classified confidential, secret or top secret. But there are special code name classifications for communications intelligence, satellite photography, intelligence collection methods and cryptographic technology. All code names, however, deal with sources of information. According to one of the sources knowledgeable about "royal," the system is not intended to protect intelligence sources or methods of collection.

The source said that Carter's national security affairs adviser, Zbigniew Brzezinski, who chose the term "royal," told Central Intelligence Agency Director Stansfield Turner in a letter early in February that the new system is designed to protect the information, regardless of the source.

"That translates," said one source, "to protecting politically sensitive, potentially embarrassing information."

The sources said Carter's directive implementing the system states that it is intended to provide key policymakers with advanced intelligence so they can formulate positions that will appear, publicly at least, more timely and responsive.

The sources said the type of intelligence classified "royal" is sometimes more significant from a political than from an intelligence viewpoint.

For example, some intelligence information involving Libya was given the "royal" treatment -- including a report in which Libyans were quoted as describing the president's brother, Billy, as "our agent of influence."

The new system is so restrictive that even the National Intelligence Daily, a summary sent to only 100 key individuals in government, has become devoid of meaningful information -- or, as one senator put it privately, "lifeless," the sources said.

The "royal" system is so secret that many members of Congress, military officers, and other government officials who have "top secret" clearances don't know it exists.

Only eight members of Congress -- four senators and four representatives -- have been given access to "royal" information. In the Senate, they are Birch Bayh (D-Ind.), Barry Goldwater (R-Ariz.), Howard H. Baker Jr. (R-Tenn.) and Robert C. Byrd (D-W.Va.).

The only congressional staff members given access are the staff directors of the Senate and House Intelligence committees.

But because "royal" information is closely held, even the eight members of Congress who have access to it are unlikely to be aware of the contents of its daily digest unless they take the time to go to Intelligence Committee offices each day to read it, the sources said.

Politically sensitive information never gets to some Republican members of Congress, the sources said, because the "royal" system and the Intelligence committees' staffs are effectively controlled by the administration or by Democrats.

"When you establish something this restrictive, you in effect deny access to the minority party, which could have an effect on policy," one source said.