State Sen. Clarence M. Mitchell III, a member of one of the most prominent political families in Maryland, is under investigation by federal authorities for possible perjury and obstruction of justice, according to sources close to the probe.

Sources said the investigation is focusing on whether Mitchell arranged fabrication of financial documents to support allegedly false testimony he gave last May to a federal grand jury investigating whether he has business ties to a major Baltimore heroin dealer.

Mitchell provided the financial documents to prosecutors in the U.S. attorney's office, according to sources.

Mitchell, a Democrat who is expected to announce for Congress this month, refused to comment specifically on the investigation, but said his activist politics have made him a target of unfair government scrutiny in the past. "In 24 years in the legislature, I've been under investigation 16 times," he said.

Mitchell's attorney, Abbe Lowell, said, "The senator has fully cooperated with the government, has done nothing wrong, and I question the motives of those who are making these charges and who continue investigations which should have long been closed."

According to sources, Baltimore businessman Jerry L. Hill told a grand jury that Mitchell, accompanied by his brother, Baltimore City Council member Michael B. Mitchell, asked Hill to prepare a financial statement showing that Hill had made a series of loans to Clarence Mitchell. In his testimony, Hill said employes of his investment firm prepared backdated documents for four loans, including a 1983 loan of $15,000 that was never actually made, sources said. Hill's financial records were subpoenaed in January, sources said.

The grand jury was looking into the possibility that Mitchell had received a large amount of cash from convicted heroin kingpin Melvin D. (Little Melvin) Williams, the target of a wide-ranging narcotics investigation, sources said. Sources said Mitchell told the grand jury that he received some money from Williams, but that other cash amounts reflected in his financial records came from a loan Hill made to him in 1983. Investigators are now looking into whether loan documents were fabricated to bolster Mitchell's statements to the grand jury that he had received only $5,000 from Williams, according to sources.

The investigation of Mitchell has intensified in the last few months, sources said, and is continuing at a time when he is on the threshold of taking over the Mitchell family mantle.

Mitchell, 46, is expected to begin a campaign to succeed his uncle, Rep. Parren J. Mitchell, who is retiring from Congress this year after representing the 7th Congressional District in Baltimore for eight terms. Mitchell's father, the late Clarence M. Mitchell Jr., was the Washington lobbyist for the NAACP and helped shepherd much of the 1960s civil rights legislation through Congress.

Friends and associates of Mitchell, who has served in the legislature for 24 years, said he plans to announce his candidacy at a news conference he has scheduled for April 28, on the steps of the city courthouse named for his father.

Law enforcement sources and others familiar with the Mitchell investigation said it grew out of a joint state-federal investigation of Williams' heroin organization, which for two decades has controlled a large share of the heroin trade in West Baltimore.

Williams, who was convicted on drug charges for the third time last year, is serving a 34-year term at Lewisburg penitentiary in Pennsylvania. Drug enforcement officials said they believe Williams continues to control his organization from prison and they are trying to bring further charges against him. Officials also said they believe the Williams organization has been responsible for several drug-related slayings in Baltimore.

Sources said the suspected tie to Mitchell stemmed from raids, conducted in December 1984 on Williams' home and a nightclub he owns, during which authorities discovered a contract between Mitchell and Scrapp Investment Inc., a firm controlled by Williams.

The contract showed that Mitchell was to get a down payment of $50,000, law enforcement sources said, but it did not state what work would be done in return. Sources said Mitchell told the grand jury that the contract was for help he provided in preparing a real estate loan application for Williams' firm, which needed funds to renovate a Baltimore building it owned.

Mitchell, who is vice president of Mitchell-Johnson Properties Inc., a real estate firm, told the grand jury he had received a legitimate $5,000 fee for his work for the Williams firm, sources said.

Hill is listed in Mitchell political literature as a supporter who served on a recent fund-raising event billed as a "Tribute to Clarence M. Mitchell III." In addition to owning the investment firm, Hill owns several other Baltimore businesses, including a bar and two gas stations.

Law enforcement sources said Hill is the subject of a local narcotics investigation.

One of Hill's employes, (Fat) Marvin Johnson, a bartender at the Red Carpet Lounge, an East Baltimore business owned by Hill, pleaded guilty in January to conspiracy to distribute heroin. Prosecutors had alleged that Johnson initiated heroin transactions in the Red Carpet Lounge. Johnson is currently free on $1 million bond awaiting sentencing. No evidence in the case linked Hill to Johnson's activities.

Hill was called before a grand jury several months ago and questioned about the loan documents his company prepared, which consisted of four promissory notes and a one-page financial statement showing that Hill had made four loans to Mitchell over a period of several years, according to sources. Sources said Hill told the grand jury that he had drawn up the documents at the request of the Mitchell brothers, and that one of the four loans -- purportedly made in 1983 for $15,000 -- was never made.

Wilkens McNair, an accountant for Hill's firm, Hill & Sons Management Co. Inc., also testified before the grand jury about circumstances surrounding the preparation of the loan documents, according to sources.

Neither Hill nor McNair could be reached for comment on the loan documents. Charles G. Bernstein, an attorney for Hill and McNair, refused to comment on any aspect of the investigation or his clients' involvement with Mitchell. Bernstein said he had no knowledge about a narcotics investigation of Hill.

Michael Mitchell could not be reached for comment. Officials at the U.S. attorney's office here also declined to comment.

Mitchell, who was first elected to the Maryland legislature at age 22, has faced legal problems before. In 1983, he was fined $250 after a loaded gun was found in his carry-on luggage at Baltimore-Washington International Airport. Ten years earlier, he pleaded no contest to charges of failure to file federal income tax returns. He has also been fined for housing code violations on properties he owns.