East Timorese guerrillas have met secretly with Indonesian military officials to negotiate a demand for self-determination after declaring a cease-fire in their eight-year war to free the remote Southeast Asian island territory from Indonesian occupation, according to a highly placed source here in the Portuguese capital.

Top-ranking Indonesian officers traveled by helicopter from the island capital, Dili, to a jungle base in the interior twice in March to negotiate with the leaders of the Revolutionary Front for an Independent Timor, known in Portuguese as Fretilin, according to this source.

The source, a well-placed non-Fretilin Timorese who arrived here recently from the former Portuguese colony, asked not to be named. He said the Indonesian delegation headed by the military commander of East Timor, Colonel Purwanto, and an intelligence officer flew to Lari Guto in the rugged eastern region of the territory for meetings March 21 and 23.

Fretilin leader Sha Na Na, 39, and his general staff reportedly centered the talks on three principal demands: a cease-fire, government notification to the United Nations that it is willing to negotiate with the rebels, and a self-determination act supervised by the United Nations and neighboring states.

The source in Lisbon said the governor of East Timor, Mario Carrascalao, a liberal Timorese who took office in 1982, attended the meetings, together with two Roman Catholic priests. The guerrillas are predominantly Catholic.

An Indonesian Embassy spokesman in Washington, Mgurah Gedhe, said Friday that "there was no such meeting" and that "we are not aware of any fighting" in East Timor. The State Department's desk officer for Indonesia, Alfred M. Lehn, said the fighting was at a low level and noted that Jakarta had made clear its intention to seek an end to the insurgency.

Abilio Araujo, a Fretilin Central Committee member based here,, confirmed the details of the meetings and said photographs, recordings and documents of the negotiations would be released at a meeting of Fretilin representatives.

This is the first report of negotiations between the two sides since Fretilin withdrew to its mountain strongholds to wage its guerrilla campaign against Indonesian invasion forces in October 1975.

The island, about twice the size of Hawaii, historically was divided between the Portuguese eastern half and the Dutch west, where Indonesia's claim was not contested. Portugal abandoned East Timor during a three-month civil war among three independence movements. Fretilin emerged the victor. Neighboring Indonesia then invaded, alleging an independent Timor could pose what a general described as "a Marxist threat to our soft underbelly."

Relief agencies estimate that more than 150,000 islanders perished during the hostilities and the famine and disease they provoked. The East Timorese population is now about 560,000, according to Indonesian census figures.

After the fighting, Indonesia pronounced East Timor its 27th province and said the population had accepted integration. It imposed a selective news blackout that diminished reports of guerrilla warfare and virtually sealed off the island from the outside world, according to Timorese refugees here.

The Jakarta government has persistently denied well-documented and consistent reports from refugees, church sources and international human rights organizations that there have been mass executions, thousands of disappearances, torture, widespread fire-bombing of villages and other human rights violations.

It was not clear from which side the current reported truce initiative came. The non-Fretilin source in Lisbon said the guerrillas appeared to be negotiating from a position of strength, having regrouped 6,500-strong under a new leadership after setbacks last year.

Indonesian authorities say, however, that the guerrillas have been reduced to a few hundred ill-fed and ineffective men. Despite Indonesia's undoubted military superiority, observers here say, Jakarta may be seeking a respite in a war that it apparently cannot win, a war in which the guerrillas--with their intimate knowledge of the island and at least the passive support of the population--are able to hold Indonesian battalions to a stalemate.

A second motive behind Jakarta's reported role in the negotiations could be a determination to win international support for its presence in Timor by casting itself as a peacemaker and seeker of dialogue. After an intense diplomatic campaign, Indonesia has steadily reduced the number of nations supporting a U.N. resolution calling for its immediate withdrawal. Last year the motion, consistently opposed by the United States, passed by only 4 votes.