Amid intense political pressure from Capitol Hill and the whole spectrum of special-interest groups, the Office of Management and Budget yesterday withdrew a controversial proposal to restrict the way government contractors and grant recipients can spend federal funds on "political advocacy."

The proposed revisions to OMB's Circular A-122 were designed to prohibit the use of taxpayer dollars to lobby the federal government or fight it in court. When OMB suggested the change in January, it said existing rules were haphazard, inconsistent and largely unenforceable.

But its proposal drew what OMB's Michael W. McConnell called the "largest and most organized political outcry in years."

OMB received more than 6,000 letters opposing the rules, including ones from the Girl Scouts of America, the U.S. Chamber of Commerce, the American Civil Liberties Union and the Alliance for Justice, an umbrella group of liberal organizations.

"The definition of political advocacy was overly broad and the consequences of engaging in political advocacy under the proposed rule were excessively strict," said McConnell, who works in the office that drew up the regulations. "The proposal was withdrawn, rather than merely held, because we felt we needed more time for consultation. We are guessing that it will take several months."

After 171 House members urged OMB Director David A. Stockman early this week to withdraw the rules, he responded Wednesday that the reaction demonstrated that "the original proposal has gone further than we intended . . . ."

"I am confident that a new proposal can meaningfully address our objective that appropriated funds should not be used, directly or indirectly, to pay the expenses of those who lobby on government matters," Stockman wrote the members.

Under the proposed rule, a group could not receive federal funds if the funded activity was conducted in the same office or by the same people that handled political activities.

Critics said the proposal would limit government funding of liberal groups and stifle their political activities. "It fits into the pattern that this administration does not like to hear an expression of views that they don't agree with," said Mark Silbergeld, director of Consumers Union.

The proposal also would have prevented employes paid with federal grant money from engaging in political activities outside of working hours.

"OMB should be the watchdog to make sure that our tax dollars are not being misused," said Sen. David F. Durenberger (R-Minn.). "Many of the groups that would have been silenced by the OMB proposal have been the most effective in advocating the rights of the handicapped, the poor and other disadvantaged groups."

OMB had said previously that separate regulations would be issued by the General Services Administration and the Defense Department to cover their procurement activities. DOD issued its guidelines, but said it will withdraw them now; GSA never issued its version.

OMB and those who wrote the rules "apparently don't understand how we operate," said Philip A. Read, director of federal procurement regulations for GSA. "You could have predicted right from the word 'go' what the reaction would be. There is no sense in putting out something you know you will have to pull back shortly--so we didn't."