NEW YORK (AP) _ Rabbit, Eli and Raymond huddled around the fire blazing in a dented metal trash can while Doc slept off the booze in his unheated shack, curled up next to a stray dog for warmth.

Mike Cruzado ushered a visitor into the muddy, vacant city lot past a junked sedan and a pile of crumbled bricks.

''Welcome to Shantytown,'' he said with a sweeping gesture.

Cruzado, his wife Delia Torres, and six other homeless men built the cluster of plywood shacks because they were afraid to stay in city shelters that they describe as overcrowded, dangerous and inhumane.

Shantytown is their home ''and we live here with dignity,'' said Torres.

But now Shantytown is becoming a battleground in an unusual suit the street people hope will pave the way for squatters to build ''Hoovervilles'' across the city. Hoovervilles, named for President Herbert Hoover, were the towns of shacks built across the nation by unemployed and poverty stricken Americans during the Depression.

The trouble began in November when the city Department of General Services sent an official to Shantytown to tell the residents to get off city property.

''They threatened to bring in the police to force us to leave, and they said they were going to clear the lot and throw our houses away,'' said David Jacobs, a bearded 34-year-old ex-Marine.

''We think there should be Shantytowns all over New York City,'' he said.

On Dec. 20, an eviction notice was posted on the swaying chain-link fence around Shantytown, advising the residents to vacate within 10 days.

The residents instead turned to the Center for Constitutional Rights, a nonprofit civil liberties organization that filed suit on their behalf Thursday in state Supreme Court. A hearing is scheduled in the trial court Tuesday. The suit against New York City, Mayor Edward I. Koch and General Services claims Shantytown is a symbolic protest against the government's failure to provide adequate shelter for the homeless, and that dismantling it would therefore violate its residents' First Amendment rights.

General Services has ''no plans to move them out anytime soon,'' said spokeswoman Barbara Perkins. ''It's winter, and they've refused to go to shelters or be put on lists for low-income housing.

''We're somewhat sympathetic to their plight, but they are there illegally and it is city property.''

The Shantytown residents have all been street people for years, and say they're tired of sleeping in squalid city shelters, parks and subways, in doorways and on rooftops.

They built their ramshackle community out of desperation and determination, they say, using scavenged wood, plastic sheeting, tarpaper and foam rubber. They support themselves through odd jobs, panhandling and rummaging in trash bins.

Candles provide the only light and blankets the only heat in the shanties. A bucket serves as the community toilet and water is hauled in five-gallon drums from a garage up the street. A resident of an apartment nearby sometimes lets Shantytown residents use his shower.

The Shantytown residents cook over the trash can fire and sleep on old mattresses on the plywood floors of their closet-sized shacks. They share whatever food and clothes come their way.

''We feed people who come by every night,'' said Delia Torres. ''We do a better job taking care of ourselves than the city could.''

Rabbit, a slight 32-year-old man with a wry sense of humor, said he has been living in Shantytown since he wandered into the yard eight months ago ''and was adopted.''

''This is 200 percent better than any shelter,'' he said. ''Shelters are hell. You sleep next to a guy who's picking bugs out of his hair and when you wake up, you're lucky if you still have shoes. You can get stabbed over something to eat. Here, everyone eats or no one eats.''

Doc, a beefy 46-year-old, founded Shantytown in a larger lot across the street two years ago when he invited Mike and Delia to build a shack next to his own and become neighbors.

Since then, everyone is welcome as long as they build shacks within a week and help haul water and trash, the residents say. It doesn't matter how much you have in Shantytown, as long as you share it.

''We're a self-help shelter, and our system works,'' said Torres, a 33- year-old mother of five whose children live with their grandmother. A child's crayon drawing decorates the wall of her shanty above a jar of wilted flowers.

Randolph Scott-McLaughlin, the Center for Constitutional Rights attorney representing the Shantytown residents, described his clients as ''refuseniks.''

''They are refusing to participate in a shelter system that is abominable and a welfare system that is demeaning,'' he said.