The biggest political trial now in Eastern Europe is taking place in this Balkan capital, chilling free discussion here and eroding Yugoslavia's liberal image abroad.

Six intellectuals face jail terms of five to 15 years on a charge of organizing "an illegal hostile group" aimed at undermining the system and abolishing the government.

Many Yugoslavs and western observers view the state's case as disturbingly weak and a political blunder. Some government officials confess privately to being embarrassed by the proceedings.

The defendants are a motley collection of little-known Belgrade figures who, as one American who was here remarked, resemble "a crew like Woody Allen might put together for a movie -- they couldn't overthrow Scarsdale."

The indictment is vaguely worded and the trial, which began last month, has produced nothing yet to substantiate the severe allegation against the accused.

Some in Yugoslavia's Communist leadership are known to have opposed the trial. Its outcome still appears uncertain.

The purpose of the trial, according to informed Yugoslav and diplomatic sources, is primarily to curb potential unrest arising from conditions of prolonged austerity and persistent inflation. Sharp debate over the need for economic and political reform of Yugoslavia's decentralized system has already broken out within establishment ranks. Unable to check the discussion or to turn the economy around, party officials are believed to be moving against the dissidents to show at least the limits of debate and to reassert some authority.

The intellectual community has rallied behind the Belgrade Six, vigorously protesting the trial. The intellectuals fear the case could become the first in a series of political trials. The crackdown has soured the mood among Belgrade's intelligentsia, who had enjoyed growing freedom of expression after the death in 1980 of Josip Broz Tito, founder of the modern Yugoslav state.

That the trial is being held in Belgrade, capital of Serbia as well as of the Yugoslav federation, is significant. It supports a widespread impression that a coordinated squeeze is being put on the relatively tolerant Serbian leadership by the hard-line republics of Croatia and Bosnia. Earlier this year Croatian party leaders accused about 200 writers, artists, scientists and public figures in Serbia and Slovenia of acting from "antisocialist positions."

Handling of the Belgrade case is being watched as a telling barometer of an internal power struggle in this one-party nation over the future extent of political reform and economic restructuring. It is popularly thought that Serbian authorities acquiesced in the trial perhaps as part of a deal, trading action against the six dissidents for concessions from Bosnia and Croatia on political changes advocated by Serbia.

So far, the Reagan administration, which generally has condemned human rights abuses in other communist countries, has remained publicly silent about the Belgrade trial. U.S. diplomats here will say nothing on the record about it, but the embassy has sent an observer to the trial each day as a sign of official American concern.

The United States orchestrated a western effort last year to reschedule Yugoslavia's large hard-currency debt and to provide additional financial aid. American officials are keen to shore up Yugoslavia's precarious stability as a nonaligned buffer state bordering the Soviet-led Warsaw Pact.

Western reporters, meanwhile, have given the trial lots of critical attention. This seems to have surprised Yugoslav authorities, who had not expected such interest in a group of minor dissidents. Amnesty International, various Helsinki watch committees and the American Bar Association have sent observers to the trial.

Western focus on the case has pricked Yugoslav touchiness toward outside interference, already evident in the government's reluctance to submit itself to further supervision by the International Monetary Fund, as western creditors have insisted. Yugoslav officials and press have accused "circles in the West" of launching a propaganda campaign to undermine confidence in the country's judicial system.

There is no organized opposition to Communist control in Yugoslavia. Criticism of the current order has been limited to small but vocal groups of intellectuals, primarily in Belgrade and Ljubljana, who have been accorded freedom to discuss both practical and ideological issues so long as the image of Tito and the sacrosanct tenet of self-management are not denigrated and regional nationalism is not aroused.

Most Yugoslavs support the country's unique socialist variant, though at present the system is being sorely tested by economic hardship. Inflation is running at more than 60 percent, unemployment has topped 15 percent, and the western debt is about $20 billion.

The press, which walks a tightrope between freedom and constraint, is generally the boldest in Eastern Europe. As another indicator of Yugoslavia's relatively good past record on human rights, most citizens are able to travel abroad, although some dissidents are denied passports.

American officials estimate that there are between 600 and 800 political prisoners in Yugoslavia, most of them accused of some form of "hostile propaganda." The charge leveled against the Belgrade Six -- association aimed at hostile activity -- was previously reserved generally for those urging separatism in Croatia in the early 1970s and in Albanian-speaking Kosovo since 1981.

The crackdown in Belgrade began April 20, when police raided an apartment where people had gathered, reportedly to discuss Yugoslavia's nationality problem. The 28 persons present were detained. Milovan Djilas, the veteran dissident who was one of Tito's closest associates before being dismissed from the party 30 years ago and jailed for nine years, was there to lecture on the country's tangled ethnic relations.

The police action threw a spotlight on a so-called "free-university" community that had been meeting around the city in private apartments every couple of weeks for the past seven years, since the forced closure of the dissident journal Praxis and the expulsion of eight professors from Belgrade University.

Discussion topics dealt not only with economics and politics but ranged as far afield as sports, computers and Zen Buddhism.

Dissidents have charged that several of those detained in April were beaten in custody. One, Radomir Radovic, was found dead 10 days later. Authorities called the death a suicide by poison but some friends say they doubt that.

Later, six who had participated in the free-university sessions from time to time -- including four on April 20 -- were charged with using the gatherings to conspire to overthrow the government.

A seventh, Vojislav Seselj, a lecturer in political science at Sarajevo University, was tried in July, also for "counterrevolutionary activity," and sentenced to eight years in prison. Last month, a Bosnian appeals court changed the charge to "hostile propaganda" and cut the jail term in half. The guilty verdict against Seselj was based largely on an unpublished paper proposing that Yugoslavia's six republics and two autonomous provinces be consolidated into four republics.

The six on trial now are Vladimir Mijanovic, 38, an unemployed sociologist; Miodrag Milic, 55, a freelance scriptwriter; Dragomir Olujic, 35, a radio station publicist; Gordon Jovanovic, 23, a student; Pavlusko Imsirovic, 36, a freelance translator and Milan Nikolic, 37, a sociologist.

Three of the six -- Mijanovic, Imsirovic and Nikolic -- were student activists in 1968 and served jail terms in the early 1970s on charges of hostile propaganda or being accomplices in hostile activity.

Although the six are accused of operating as the nucleus of a counterrevolutionary cell, some of them say they hardly knew the others. "This is not a group we formed," Mijanovic said in an interview. "The police formed it for their purposes."

Critics point to what they see as gaping holes in the indictment.

For three of the six, nothing is specified about what they did or said at the allegedly subversive meetings they attended. Mijanovic is accused of having set up the group at a meeting in 1977, but the prosecutor has not produced anyone who has admitted to being present then. The indictment quotes excerpts of speeches made by Milic and Olujic at some sessions. One spoke of things Tito did in the 1940s, the other of a need for greater democracy.

After the trial started, the prosecutor added a new count to the indictment implying sympathies among the six for Albanian separatists in Kosovo. This is an especially inflammatory allegation in Serbia, and the defendants saw it as calculated to smear them in the Yugoslav press. The count was based on a draft of an article found in Nikolic's apartment -- written by a Briton and later published in the New Left Review, a theoretical Marxist journal subscribed to by 30 Yugoslav institutions, as Mikolic pointed out in court.

Although charged with a serious political offense, the six dissidents are not in jail. In an extraordinary gesture, the authorities freed them from detention in July.

The trial has taken on a casual atmosphere, with supporters of the accused packing the modern courtroom, lots of procedural wrangling and constant give-and-take among an even-tempered presiding judge, agitated defense attorneys, a lackluster prosecutor and the defendants.

During recesses, the defendants mix freely, giving interviews and distributing leaflets reporting on the case.

Most of the defendants had hoped to be represented in court by Srdja Popovic, Yugoslavia's most celebrated political defense attorney. But the authorities blocked that by subpoenaing him as a witness. In April, he was detained for half a day and his law office ransacked by police.

In testimony, the accused have acknowledged taking part in the free-university discussions but say there was nothing secret or subversive about the gatherings, which they said were for cultural and intellectual enrichment, not the overthrow of the state.

Witnesses called so far by the prosecution have ended up siding with the defendants in court, denying damaging statements made earlier to interrogators who, witnesses have alleged, coerced the testimony.

Signs of disagreement among party leaders over what to do about the six surfaced earlier this year. Mitja Ribicic, a Slovenian member of the federal party presidium, told the weekly paper Nin in July that he did not like the idea of prosecuting intellectuals, offering instead the motto: fight a book with a book.

But the main Yugoslav dailies have since taken a tough, accusatory line toward the Belgrade Six, reflecting a party decision to proceed with the case.

Rade Mikijelj, the attorney defending Mijanovic, said there is still a chance that the authorities may soften. Therefore, it is in the defendants' interest to prolong the trial as much as possible.

"We know what the outcome would be if the case were ended today," said Mikijelj, "but the political struggle goes on behind the scenes, so we try to delay things because two or three months from now, who can say what new political deal might be struck affecting the case?"

Said defendant Nikolic: "We are afraid that if convicted, this process will spread. We want this to be the last frame-up in Yugoslavia. We must end the process of prosecution of critical intellectuals on the basis of false evidence."