Regional warfare in Congress has escalated with the creation of a Sun Belt Council designed to prevent the Northeast and Midwest from taking too big a piece of the federal budget.

More than 90 House members from 17 southern and southwestern states have joined forces to counterattack the Northeast-Midwest Coalition and what they believe has been a significant shift in the flow of federal funds from their region to the North.

"We really resisted forming it, but we felt it was forced on us by our Northeast and Midwest colleagues, who have a case of terminal paranoia," said Rep. Charles Wilson (D-Tex.), the council chairman. "They blame all the problems of their area on the formula for federal grants, which is pretty absurd."

John Buchanan, a former Alabama congressman who is serving as the council's staff director, called the new caucus "a counterforce, not so much to serve regional interests of the Sun Belt, but to protect the rest of the country from the highly effective efforts of the Northeast-Midwest Coalition on behalf of their region, usually at the expense of the rest of the country."

Said Rep. Bob Edgar (D-Pa.), chairman of the Northeast-Midwest Coalition, "If they are organizing out of fear that we are winning too many battles, I appreciate that compliment, but as I look at the Reagan budget it doesn't look as though it's tilted from South to North."

Edgar's group has argued that President Reagan's proposed budget cuts will fall most heavily on the Frost Belt, and is organizing to soften the blows as the budget makes its way through Congress.

Buchanan said the Sun Belt Council, which disagrees with its northern brethren on the bias in the Reagan budget, will try to prevent the North from having its way in the distribution of the cuts.

He said the new caucus will work to reverse a policy that now targets defense spending to areas of high unemployment, fight to get a larger share of energy assistance funds, which now go more to the colder northern states, and argue that proposed cuts in welfare actually fall more heavily on the largely black, rural poor in the South rather than welfare recipients in the North.

"Sun Belt is really an unfortunate term," Buchanan said, "because it fosters the image of states prospering at the expense of the East and Midwest. The reality is that some [Sun Belt] states are doing very well and others are not doing well at all."

The caucus, formed on April 8 after several years of aborted attempts, will have a budget of under $100,000 and a small staff, Buchanan said. It will work closely with the Southern Growth Policies Board, the Southern Governors Association and the Southern Legislative Council.

"We're going to have a modest effort, but I think it will be enough to put straight some of [the other side's] outrageous propaganda and statistics," Wilson said. "They've got 40 or 50 staff people who turn out reams of false documents every week."

The Northeast-Midwest Coalition, formed in 1976, includes 213 House members, has a budget of about $100,000 and a staff of five. For research, it relies on the Northeast-Midwest Institute, which has a staff of 15 to 20 persons and a budget of $400,000 to $500,000, according to executive director Tom Cochran.

Cochran welcomed the competition, but with reservations. "There is no effort here to be divisive or wave the bloody shirt," he said. "The problems of older, industrial cities . . . are not unique to our region. [But] we get trapped in a futile debate about who's worse off. I worry a bit that this time around, with a cemeting organization being formed, we'll focus on the wrong issues."

Said Wilson, "They're led by a rather humorless group who have a lot of hate in their hearts. But what battles we don't win this year, we'll win next year."