In a sharp break with tradition, House Democrats yesterday ousted Rep. Melvin Price (D-Ill.), 80, as chairman of the powerful Armed Services Committee and reached well down in committee ranks to give the post to Rep. Les Aspin (D-Wis.), 46, a frequent critic of the Defense Department.

All other incumbent chairmen were reelected by the Democrats, who met in caucus. In addition, the caucus filled three vacancies. Rep. William H. Gray III (D-Pa.) was chosen to be chairman of the House Budget Committee, Rep. Julian C. Dixon (D-Calif.) to head the Committee on Standards of Official Conduct, and Rep. Lee H. Hamilton (D-Ind.) as chairman of the Permanent Select Committee on Intelligence.

The elevation of the generally liberal Aspin to head Armed Services suggests the committee, and House Democrats generally, may be less willing than in President Reagan's first four years to approve his defense buildup.

But Aspin, a sophisticate on defense issues, also has been willing to compromise with Reagan on occasion and helped engineer a victory for the MX missile two years ago in a tradeoff for arms control concessions.

Gray, a member of the Congressional Black Caucus, is also likely to be more liberal than his Budget Committee predecessor, Rep. James R. Jones (D-Okla.), who could not remain as chairman under House rules. But Gray has said His liberal credentials give him considerable leeway to take on issues others would not touch.

The 121-to-118 secret ballot to strip Price of the armed services chairmanship occurred after House Speaker Thomas P. (Tip) O'Neill Jr. (D-Mass.) pleaded that Price be given one more term as chairman so that he can "leave the House with the same thing he brought here -- dignity."

After voting against Price, who sat quietly through the debate on his abilities, the Democrats then voted 125 to 103 to pass over the next senior Democrat, Rep. Charles E. Bennett (Fla.), 74, and make Aspin the chairman. Aspin is seventh in seniority on the committee, but committee members more senior to him did not run in deference to Bennett.

Democrats control the House by 70 votes and they select committee chairmen.

By tradition, the chairman of a committee is its most senior member. In only a handful of cases this century has the majority party ousted a chairman, most recently in 1975 when a group of younger Democrats succeeded in removing three chairmen they viewed as too authortarian. One, Rep. F. Edward Hebert (D-La.), chairman of armed services, was pushed out in that coup -- to be replaced by Price, the next-senior Democrat.

In the past few years, Price has become frail, and it often appeared that the committee was being run by its ranking Republican, Rep. William L. Dickenson (R-Ala.). In addition, the committee is dominated by conservative Democrats who have supported Reagan's defense buildup when most House Democrats have not.

"I think there was a sense that Mel, because of his physical debilities, gives the impression of not being in command of the situation," said Majority Leader James C. Wright Jr. (D-Tex.). "His mind is clear . . . but his speech is halting and he is physically ravaged by rheumatism or arthritis."

Aspin, one of a group of younger, moderate Democrats pressing for a new image for the party, said after the vote, "It probably was a signal that the Democratic Party ought to be doing some more serious looking at defense."

Many Democrats believe the party needs to "develop a more coherent policy on defense, on defense spending, on waste . . . and on arms control," he said.

"This is bad news for Defense Secretary Caspar W. Cap Weinberger, bad news for the Defense Department but good news for the country," said Rep. Leon E. Panetta (D-Calif.).

However, Rep. Samuel S. Stratton (D-N.Y.), the committee's third-ranking Democrat and a strong conservative, said, "I think it's unfortunate. It tells the American people that the Democratic members of the House are anti-defense."

While the vote to oust Price was driven by the sense that he had become ineffective as chairman, several members said that some younger members wanted to indicate that the seniority system is not sacrosanct.

"The rewards for diligent service and old age should be respect and maybe a good pension but not a committee chairmanship," Rep. Barney Frank (D-Mass.) said.

Some Democrats said that Aspin won simply because he had lobbied longer and harder for the post that anyone else. Lawmakers said Price had done little lobbying. Bennett telephoned colleagues to say he supported Price but wanted the chairmanship if Price were defeated.

"I'm a guy 74 years of age, in good health, and my peers turned me down," Bennett said after the vote. "I have the appearance of being a very old man . . . . It's not nice to fail, particularily at age 74. There are not many chances to recoup.

"But 10 or 15 years from now I'll be knocking at the pearly gates and St. Peter won't ask me if I was ever chairman of the House Armed Services Committee," Bennett said. "I really thought I would be elected."

According to those attending the closed caucus, sentiment for retaining Price came from the Democratic leadership, many of the House's "old guard" who have moved well up the seniority ladder, half or more of the members of the Armed Services Committee, and members of the Congressional Black Caucus.

Black caucus members are loath to upset the seniority system because in the past it protected blacks who gained seniority. Rep. William L. Dawson (1943-1970) who chaired the House Government Operations Committee, was the first black committee chairman.

Aspin was backed by many younger Democrats across the political spectrum. However, some liberals had indicated they might not support him because of the key role he has played in helping the administration win approval of the MX missile.

Going into the caucus, Price appeared to be headed for resounding defeat. Most Democrats said O'Neill's speech on his behalf turned the tally into a three-vote cliffhanger that forced two recounts.

In addition to telling the Democrats that "the dignity of an individual is at stake," O'Neill defended the seniority system, saying that it protects everyone equally. He said Price promised to give up the chairmanship after two years.

After a hand tally of the secret paper ballots showed he had lost, Price spoke for the first time, thanking everyone for having let him serve as chairman and telling the caucus he had enjoyed his years on the committee. He got a standing ovation.

A caucus panel responsible for recommending all chairmen then met for 15 minutes and sent down Bennett's name. Until this point Aspin, or anyone else, was precluded from running.

Aspin, who apparently was surprised by the slim margin of defeat for Price, spent this time lobbying Democrats eating lunch in the House restaurant. In another room of the restaurant Price lunched with Majority Leader Wright as other Democrats came by to give him their condolences.

After both votes, Price, Bennett and Aspin shook hands and, according to one Democrat, "all of them had tears in their eyes."