The newspapers reported it as another bloody incident in the battle between the Chilean government and leftist terrorists. Ivan Quinteros, a militant and former prisoner who had secretly entered the country from exile, was riding his bicycle down a Santiago street when police confronted him. A gunbattle broke out, the papers said, and Quinteros was killed.

It was not an unusual story these days in Chile, where a wave of assassinations, bank robberies, and shoot-outs has been blamed on a revived network of militant leftists allegedly trained and supplied from abroad. But the case of Quinteros was to take a strange twist.

Last month, Quinteros' mother filed a complaint against government security forces saying that Quinteros had never been imprisoned or been out of the country, as the papers had said. She said that he was not armed at the time he was killed, and that a bus full of police had simply shot him down in front of dozens of witnesses who then saw the police fire bullets into their own vehicle to simulate a fight.

The charge implied that the incident had been deliberately staged by the Chilean government in order to quickly and simply eliminate another suspected leftist.

The Quinteros case is one of a series of cloudy events that have emerged during the past year during what appears to be a real upsurge of militant opposition in Chile and, possibly, the development by the military government of a violent new way of dealing with it.

During the past two years, government officials and other analysts say, there has been a marked increase in the number of former Chilean revolutionaries returning to the country to work against the government of Maj. Gen. Augusto Pinochet.

Many of the militants belong to the Revolutionary Left Movement (MIR) that called for violent action even before the 1973 coup that overthrew Socialist president Salvador Allende and that has recently urged its exiled or dormant ranks to renew its attacks, the sources say.

MIR activists were blamed for a series of bank robberies and the shooting of government intelligence chief Col. Roger Vegara during 1980. While no firm evidence exists in any of the cases, leftists have also been named as the likely planners of several dramatic shooting attacks last year on police and government officials, including Chilean Supreme Court President Israel Borquez.

Meanwhile, a growing number of violent "confrontations" have occurred between police and the alleged leftist militants--and with them, a series of legal complaints by families charging that their relatives were set up to be killed by the government. Sixteen persons were killed in skirmishes during 1981--compared to only five in 1980--and two have died so far this year.

The deaths of 10 of these persons killed since the beginning of 1981 have now been contested by legal proceedings, and human rights activists have begun to cite the questioned confrontations as a major new Chilean human rights problem.

The director of the Catholic Church-sponsored human rights group Vicariate of Solidarity, Juan de Castro, said in his annual letter this year that there was now "serious evidence to maintain that in at least some of these situations, one has not dealt with exact confrontations, but with executions."

The vicariate and other rights groups, while agreeing that a real increase in militant leftist activity and terrorism has occurred, now say they believe that the military has adopted the strategy of simply killing those people suspected of ties to the MIR and other groups, effectively using the "confrontations" as a front to help prove the government's contention that terrorism is on the rise.

"This is the method that has been used to replace the disappearances of people," said Andres Dominguez Vial, the coordinator of the Chilean Human Rights Commission. More than 600 persons had disappeared in Chile between the coup and the late 1970s, and the end of those cases has been widely cited by U.S. officials as proof of Chile's improvement in human rights.

The charges of faked confrontations have been heatedly denied by government officials, but human rights lawyers handling the legal cases cite several characteristics that seem to distinguish the contested deaths and could suggest that shoot-outs were simulated.

In most of the cases, the alleged terrorist has been killed while alone, sometimes in a remote area or late at night when there have been few witnesses. Each time police have reported that they responded to shots by the suspect, but no officer or intelligence agent has been injured.

In some cases, families have charged that their relatives were followed by the police or had their homes searched days or weeks before their deaths--indicating government forces were keeping track of the militants before the allegedly spontaneous confrontations occurred.

Perhaps the strangest of the cases--and so far the most controversial--occurred early one morning last fall when four men died in a flaming car in a remote area of Santiago several blocks from the home of Foreign Minister Rene Rojas.

For days, the event won headlines in the loyal government press: the terrorists, it was said, had planned to assault the minister's residence armed with bombs, grenades, Soviet-made rifles and a Czech submachine gun, when they were intercepted by government forces. A battle broke out, and the taxicab used by the terrorists exploded.

All but one of the four extremists, it was reported, had been burned beyond recognition. The one identified was Luis Pantaleon Pincheira, a MIR militant who had returned clandestinely to the country. The other men were presumed to be MIR activists as well, and newspaper columns soon appeared condemning Soviet Bloc training and support for the terrorists suggested by the weapons and by the time Pincheira had spent outside the country.

Then the questions began to surface. A Santiago secretary whose husband had been missing since the night before the event demanded to see the bodies and, when refused, obtained a court order allowing her into the morgue. From dental records, she identified one of the men as her husband, Juan Ramon Soto Cerda, a 30-year-old taxi driver and former socialist activist.

Another body was identified soon after as Jaime Alfonso Cuevas, a lumber worker from southern Chile who, according to his mother, had little knowledge of politics and had never previously been to Santiago.

When Sonia Aguayo, Soto Cerda's wife, was allowed to see the burned bodies, she said her husband's body was missing the arms, legs, and most of the cranium. The damage was attributed by authorities to the explosion and fire, but rights lawyers who took on Aguayo's case pointed out that no explosion could have totally destroyed the limbs of the bodies while leaving the car relatively intact.

Aguayo has now boldly issued statements and held press conferences to make her case, contending that her husband, though once a political activist, was living a simple life as a taxi driver when he was scooped up by the government intelligence service to help stage a spectacular death for their real target, MIR member Pincheira.

"I don't think they wanted him ever to be identified," she said in an interview, "because he had nothing to do with any terrorism against the government. He was just a taxi driver who came home early every night and was a good father to his children.

"They just needed a fourth person for their show," she said, "to prove there is terrorism and to justify what they are doing."