The Big Ten Conference, following a meeting of league faculty representatives, has significantly reduced penalties it imposed on the University of Illinois athletic program, although the school is still on probation. The rewritten sanctions are expected to allow Illinois to lose only $500,000 in projected revenues, instead of $1.6 million.

The Illini had threatened to drop out of the Big Ten if the sanctions were not reduced. Stanley Ikenberry, president of university, said he was pleased with the revised penalties.

Illinois is being penalized for the way it handled the academic-eligibiity case of record-setting quarterback David Wilson.

The original sanctions, which were to have taken effect Sept. 1, included three years of probation and a two-year ban on postseason play for all men's teams. The Big Ten also said the school would not receive its share of conference revenues for two years, an estimated $1.6 million.

After a nine-hour meeting of Big Ten faculty representatives Wednesday in Minneapolis, the following changes in the sanctions were announced:

Illinois will be placed on probation and the probationary status will be reviewed no later than Sept. 1, 1982.

Illinois will be denied participation in any postseason event in football for one year.

Illinois will be denied all conference receipts from football television programs and postseason football games for one year (an estimated $500,000).

Wilson, who recently signed a multiyear contract with the New Orleans Saints, was denied a second year at Illinois by a federal judge's ruling this summer.