American Indians are declaring war on the Housing and Urban Development Department's effort to make them spend part of their federal housing aid on modular and manufactured housing.

The Indians have a name for the manufactured homes, "wheelies," and they resent that their small housing program is being used to demonstrate the cost-cutting potential of such housing. "Manufactured housing is nothing more than a high-class trailer home," said Arlyce Sparks, director of a Chippewa housing agency in Wisconsin.

Warren T. Lindquist, HUD's assistant secretary for public and Indian housing, required that 200 of the 2,000 units financed by the program this year be modular or manufactured housing.

Lindquist acknowledged that "there is very strong resistance" to this approach but said it could cut the cost of the average unit from $47,000 to $35,000 and provide jobs for some reservations.

HUD has ruled that most of the homes can no longer include basements and garages, which Lindquist said is an effort to ensure that the taxpayers don't pay for "unduly lavish" homes.

But Loie Brooks, director of the National Association of Indian Housing Councils, said, "Never before have we been pressured into going with a flimsy unit for cost savings."

In private, some Indians are worried about the fate of the program, which the Reagan administration has cut by two-thirds. It has all the problems of public housing, such as overdue back rents, plus unique ones such as inadequate sewer lines on some reservations.

The administration previously proposed converting the program to block grants or vouchers.

Tribal construction companies get preference under the program, and some Indians say they could build the housing more cheaply if they weren't bound by wage rules under the Davis-Bacon Act. There is fierce competition among the reservations for the dwindling subsidy money.

John V. Meyers, an Indian and former Interior Department official who now manages the program, said Indians need about 60,000 units nationwide, an estimate somewhat lower than that of Indian groups.

Meyers said that about 12,000 units are in the funding pipeline and that the tribes don't have the capacity to build at a much faster rate.

Meyers defended the push for manufactured and no-frills housing, saying, "We've got some mansions out there." TIME FOR A NEW SPEECH . . .

Whenever HUD Secretary Samuel R. Pierce Jr. makes a speech to urban leaders, he reminds them that he helped save Urban Development Action Grants and Community Development Block Grants from the budget ax in 1981. During the election campaign, HUD churned out news releases touting innovative uses of UDAG grants.

But after the election, President Reagan proposed abolishing UDAG again and cutting community development grants by 10 percent, and since then, Pierce has been noticeably silent. Like other Cabinet members, he was not consulted on the domestic spending cuts and his aides had to find out what was happening to their programs by reading the newspapers. They soon learned that the White House also wants to freeze rental subsidies for low-income housing for two years, cut public-housing subsidies and eliminate general revenue sharing.

Pierce, who long has defended UDAG as a spur to private investment and rental subsidies as an alternative to new construction, hasn't said whether he will appeal.