The Reagan administration's fiscal 1986 budget, to be released next week, proposes to eliminate all federal subsidies needed to guarantee scheduled airline service to small cities around the nation, sources confirmed yesterday.

The planned elimination of the Essential Air Service (EAS) program was first reported by H. Joseph Hebert of the Associated Press. The program was one of the prices deregulators paid to get airline deregulation through Congress in 1978, because many members of Congress were concerned that service to small towns would disappear under free-market economics.

Government and industry sources estimate that as many as 100 of about 135 cities receiving subsidized service could lose service or suffer sharp reductions. However, the program enjoys strong backing from midwestern members of Congress from states such as Kansas, where Dodge City, Garden City, Goodland, Great Bend, Hays, Hutchinson, Independence, Coffeyville and Parsons receive subsidized air service.

Kansas has in its congressional delegation Republican Sens. Robert J. Dole, the majority leader, and Nancy Landon Kassebaum, chairman of the Commerce Committee's aviation subcommittee.

In North Dakota, where three small cities receive subsidized service, one of the senators is Mark Andrews (R), chairman of the Appropriations transportation subcommittee.

Transportation Secretary Elizabeth Hanford Dole, a registered Kansas voter, did not fight the proposed cuts in her budget meeting with President Reagan, according to sources. EAS was one of the programs her department inherited from the Civil Aeronautics Board when it went out of business Jan. 1. The other major proposed transportation cuts are elimination of Amtrak subsidies and evisceration of the urban mass transit grant program.

It is estimated that eliminating the EAS program would save $35 million to $45 million in fiscal 1986.

Virginia cities receiving EAS subsidies are Danville and Hot Springs. No Maryland cities take part in the program.