The Agriculture Department, responding to meat processors' complaints that stringent labeling rules prevented then from marketing mechanically deboned meat products with small amounts of powered bone, yesterday proposed new rules answering most of the industry's objections.

The existing rules, which are among the first targeted for review by the Reagan administration, required such products to specify their powered-bone content on the main label.

The new proposals would eliminate this requirement. Instead, meat producers must list the calcium content of the product with the ingredient or nutrition labels, but won't have to say that the meat contains powdered bone.

The regulations governing mechnically deboned meat -- which could contain up to 3 percent bone and could be used in such products as sausages, hot dogs and chili -- have been a source of conflict between industry, consumers and the USDA for more than five years.

Industry officials had complained that the existing requirements, adopted in 1978 in the wake of successful consumer lawsuit, blocked them from using available technology to make a cheaper product generally available. A spokesman for the American Meat Institute said the group's consumer surveys showed a strong negative reaction to products carrying a "powdered bone" label. Because of the surveys, no attempt was made to market the product.

The meat insitute and the Pacific Coast Meat Association petitioned USDA shortly after Reagan took office and asked for a change in the Carter administration's rules.

They cited their consumer surveys and pointed out that mechanically deboned chicken and fish products have been on the market for years, but with labels that make no mention of powdered bone content. Mechanically deboned meat products -- -- derived from the ground-up carcasses of animals -- are also on the shelves in 29 other countries, including Canada.

Dr. Donald Houston, administrator of the USDA's Food Safety and Inspection Service, said at a news conference yesterday that if the proposed rules were adopted in final form, "billions of pounds" of this meat would be produced in the United States, potentially reducing prices. In addition, he said, the new labeling requirements would provide "more useful information -- information that's better understood.

Tom Smith of the Community Nutrition Institute disagreed strongly. "If the proposals are adopted," he said, "they will result in the deliberate deception of consumers who purchase" mechanically deboned meat.

"To remove the [existing] qualifications disguises the face that the product . . . has a lower value for consumers and could pose health problems for certain people." Smith added that the nutrition institute, which brought the original law suit against USDA, may sue again if the proposed rules become final.

But Richard Frank, an attorney for the meat institute, pointed to the conclusion of a group of government scientists that the various components of bone -- including calcium and fluoride -- would not be present in sufficient quantity to pose a hazard. USDA says that people who absorb an unnatural amount of calcium would get sufficient warning from the ingredient labels.