A little-noticed provision inserted in defense legislation in September has stripped several hundred veterans of the right to sue defense contractors for cancer allegedly caused by radioactive fallout from atomic bomb tests.

Sen. John W. Warner (R-Va.), who offered the amendment at the request of the Reagan administration, said that veterans will not be harmed by the five-paragraph provision in the Defense Department authorization bill.

"I would not have done this if I hadn't been assured by the departments of Justice and Energy that veterans who can show a link between cancer and atomic tests are being compensated through the adminstrative process," Warner said.

Gordon Erspamer, an attorney with the National Association of Radiation Survivors (NARS), charged that Warner was duped by DOE and defense contractors.

"This is a real outrage," Erspamer said. "This bill gives defense contractors license to kill."

The new law, signed Oct. 19 by President Reagan, makes the government, rather than defense contractors, the sole defendant in all pending and future atomic-test lawsuits.

Because veterans are prohibited under a 1950 U.S. Supreme Court ruling -- the Feres Doctrine -- from suing the government for injuries related to military service, the new law leaves veterans with no one to sue, according to this week's National Law Journal, the first publication to raise questions about the provision.

An estimated 1 million Americans were exposed to radiation fallout during the 693 announced nuclear tests conducted by the government between 1945 and 1980 in the Pacific Ocean and Nevada.

The government has denied liability and argued that neither veterans nor civilians who lived "downwind" from the tests were not exposed to high enough doses of radiation to contract cancer.

But a federal judge in Salt Lake City ruled in May that the government is liable for fallout from poorly supervised atomic bomb tests in the 1950s, blamed for at least nine cancer deaths in rural communities in Utah and Arizona. He awarded $2.66 million to 10 plaintiffs in the suit, which is under appeal.

That judgment sparked a rash of damage suits. The Law Journal estimated that at least 100 veterans have filed suits against more than a dozen contractors, including Monsanto Co., the Sandia National Laboratory in Albuquerque, the University of California and the American Telephone & Telegraph Co. Thousands of civilians are seeking billions of dollars in damages in similar suits in California, Nevada and Colorado.

A Justice Department spokesman said the administration "did not object" when contractors originally asked the Energy Department to propose the new law in 1983.

"The contractors were simply arms of the government making a product for it without profit," the official said. "It would be unfair to abandon them simply because they were hit by a flood of litigation."

The government also would save money under the new law because it promised contractors reimbursement for liabilities incurred because of the tests.

Veterans, who sued contractors to get around the Feres Doctrine, claimed the contractors should be liable because they gave the government bad advice that led to inadequate safety measures, a charge contractors deny.

Warner said DOE officials told him that the University of California intended to drop out of several important tests because officials there were afraid that potential lawsuits would embarrass the school. He said he agreed to insert the provision as chairman of a Senate armed services subcommittee after being told by Bryan Siebert, a DOE official, that the government already had an adequate process to compensate veterans.

Siebert said he was referring to a law passed this year that requires the Veterans Administration to study the six most common illnesses associated with radioactive fallout and decide if veterans should be paid disability compensation.

Records show that more than 3,000 veterans have filed disability claims related to atomic tests. The VA has denied all but 17 on the grounds that it is impossible to prove that veterans' cancers were caused by radiation and not other factors.