PARIS (AP) _ The Cabinet approved a five-year budget for military equipment Wednesday based on Socialist President Francois Mitterrand's nuclear policy, which stresses modernizing France's submarine force.

The approval came after weeks of infighting with Conservative Premier Jacques Chirac, who apparently wanted to place priority on developing a new mobile ground-based strategic missile.

The $70.7 billion 1987-91 budget, which must still be approved by the French Parliament, ''endorses the priority given to the modernization of the strategic nuclear forces,'' said government spokesman Alain Juppe.

Top priority goes to modernizing the submarine forces in France's land-, sea- and air-based independent nuclear deterrent.

In a statement, Mitterrand said the submarine force must ''remain the diamond-tipped point of the deterrent force.'' Submarines will be equipped with M-4 multiple warhead missiles while a new generation of submarines with more advanced M-5 missiles is developed.

The budget also includes studies for a mobile, ground-based strategic missile to replace the 18 long-range missiles in hardened silos in southern France and the weapons carried by Mirage bombers, both of which Juppe said will become obselete in about 10 years.

Chirac, in a major speech in September, appeared to want to give priority to the new mobile missile over the submarine program. Mitterrand replied Oct. 13 that as commander-in-chief he had the final word in defense strategy.

Both sides have since tried to minimize what the authoritative daily Le Monde described Wednesday as ''a very discreet and underground arm-wrestling match'' between the two men ''on strategic principles and thus, on defense equipment.''

Mitterrand issued a communique Wednesday saying he had recalled to the Cabinet ''the principles of the defense strategy of France.''

He said the first principle was that the use of a tactical nuclear weapon was a final warning, part of France's overall nuclear deterrence strategy.

By implication, the decision to use a tactical nuclear weapon would be exclusively that of the French president. Mitterrand said such a weapon could not be part of a conventional war or of a graduated response.

However, Chirac had appeared to support one school of thought that the Hades tactical missile being developed be part of the battlefield artillery.

Mitterrand's statement emphasized his control of defense by saying that the program adopted by the Cabinet ''confirms with the fundamental policies which he himself laid down.''

The final budget was worked out in a series of meetings between Mitterrand, Chirac and Defense Minister Andre Giraud.

It provides for all the major defense programs, including the Hades missile, the new Leclerc battle tank - of which 1,000 are to be ordered at $3.2 million each - and the Richelieu nuclear-powered aircraft carrier.

The air force will get early-warning radar aircraft, the choice between the Boeing AWACS and the British Nimrod-based system still to be made, and next year must define its future combat aircraft.

In space, the program calls for military observation and communications satellites.