Education Secretary William J. Bennett told a Senate panel yesterday that his proposed changes in the nation's bilingual education law would give local school districts more flexibility, but Hispanic leaders and bilingual advocates roundly criticized his plan as "a prescription for disaster."

The two-hour hearing was marked by the rhetoric on both sides, with Bennett calling current bilingual laws "heavy-handed" and a former Puerto Rican immigrant challenging the secretary to "study Japanese for six months, and then study philosophy -- his discipline -- in Japanese."

Opponents have accused the Reagan administration of using the proposed changes in the bilingual law as a front for dismantling the program -- a charge Bennett hotly denied.

"This is untrue," Bennett said. "In this time of tight financial restraint, we have maintained funding for bilingual education at its current level."

But Raul Yzaguirre, president of the National Council of La Raza, said, "The real purpose . . . is to reduce federal funds for bilingual education."

He said the changes would give Bennett "sweeping and unprecedented authority to pick and choose" among the various methods to be funded, and he accused Bennett of being anti-bilingual because of his appointments of some outspoken opponents of bilingualism to a department advisory panel.

Norma Cantu, education director for the Mexican American Legal Defense and Education Fund, warned that local school districts could not be trusted. "There is already a great amount of flexibility and with that a great amount of abuse of the rights of minority language children," she said.

The debate is over the "transitional bilingual" method of teaching English to foreign language children. Under law, at least 75 percent of federal bilingual grants must be spent on the transitional method, and only 4 percent can be spent on alternative methods, with the remainder going for administrative costs.

Bennett's proposal would remove those restrictions and allow localities to use federal money for any bilingual method they deem appropriate. The proposal has generated outcries from bilingual proponents, and praise from some local governments and from supporters of an "English-first" strategy of educating foreign children.

Research is inconclusive in determining which method is most effective, according to experts. Transitional bilingual education means essentially that children take English classes but also take their regular subject matter in their native languages. Other methods include immersion, in which teachers speak only English in all classes, and ESL (English as a Second Language) where children take intensive English classes first, before beginning their other subjects.

"Federal bilingual policy is characterized by its exceptional prescriptiveness . . . ," Bennett said. "And to this date, there is indeed no evidence of the superiority of the prescribed method -- transitional bilingual education."

The hearings were conducted by Sen. Dan Quayle (R-Ind.), who introduced a bill to remove the cap on the amount of federal money that can be used for alternative methods.