British politics has moved closer to a true three-party balance with a surprisingly strong showing by the centrist alliance of the Liberal and Social Democratic parties in yesterday's county elections.

Alliance leaders David Steel and David Owen hailed the vote as the beginning of the end of "extremism" as practiced by the "looney left" of the opposition Labor Party and the "absolute power" of Prime Minister Margaret Thatcher's Conservatives.

Both Labor and the Conservatives fared significantly worse than anticipated. But the Conservative loss of majority control in 10 of the 19 counties it previously held, while gaining control of one council, was viewed as particularly damaging in a race billed as a midterm referendum on Thatcher's policies and popularity following her landslide victory in the 1983 general elections.

The electoral alliance of the traditional Liberals and the 4-year-old Social Democrats more than doubled the number of seats it holds on the 47 county councils in England and Wales at the expense of both the Conservatives and Labor.

While the vote did not give the alliance control over any of the councils except the Isle of Wight, the one county where the Liberal Party already held a majority, the alliance gained the balance of power through hung councils in 25 counties.

Turnout is generally light in these local elections, last held in 1981. But the 40 percent of eligible voters who turned out yesterday were seen as a reflection of the British mood halfway through Thatcher's second term.

Labor lost control of five of the 14 counties it previously held and gained none. Independents had control of two seats in yesterday's voting, compared to three in 1981.

But the fact that Labor won an overall plurality of votes enabled party leader Neil Kinnock to claim confirmation of recent nationwide polls giving Labor a lead of 5 percentage points over the Tories.

"What it means is that if there had been a general election yesterday, we would be forming a government this morning. And we want an election. We want it now," he said.

Although Thatcher was at the Bonn economic summit today, Conservative spokesmen emphasized Labor's losses and sought to put the best face on the results, saying they were predictable at the midterm of a government that has had to impose unpopular measures to improve the British economy.

"I think that it's always true in midterm that people don't vote for the sitting government," said party chairman John Selwyn Gummer. "It's quite understandable. The real issue here is . . . 1981, when Labor did very well, and then lost the 1983 general election very badly."

Other political commentators noted, however, that the Tories themselves had done badly in the 1981 county races, and owed their 1983 victory to euphoria over the key event between the two votes -- the 1982 Falklands War with Argentina. The fact that yesterday's showing was a defeat compared to 1981 when the last local races were held, they said, indicated that Conservative fortunes were falling.

"Unless we're planning to have some major episode like the Falklands again, the Tories obviously are going to face a much more difficult general election whenever it comes in 1987 or 1988, judging on these results," said Adam Raphael of The Observer newspaper.

Raphael and others emphasized that the most interesting development in yesterday's vote was the strong showing of the coalition, which has been steadily rising in nationwide polls.

Although the alliance currently is running a close third with 28 percent behind Labor's 38 percent and the Conservatives' 33 percent, its popularity is not reflected in Parliament, where members are elected under a winner-take-all rather than proportional system in each district. The two alliance parties currently hold only 29 of the 650 parliamentary seats.

But the alliance says that what it currently seeks is a strong third party role in government that, once the stranglehold Conservative majority is broken in the next general election, will give it the balance of power in what some suggested today may even become a hung Parliament.

Both Steel, of the Liberals, and Owen, of the Social Democrats, said today that yesterday's local results are a good indication that they have advanced along that road.

Their platform has attacked both major parties on the same grounds that Labor and Conservative attack each other -- that Labor is too irresponsibly leftist, and Thatcher too heartlessly right-wing. The alliance has presented itself as the thoughtful middle way for Britons.