Sparks fly as Britain's Iron Lady recasts her Conservative Cabinet

British Prime Minister Margaret Thatcher has dropped three senior ministers in the first reshuffle since she came to power 20 months ago. The changes would seem to strengthen her government's already tough monetarist line and are partly intended as a warning to ministers tempted to adapt a soft approach to the ailing British economy.

The main casualty is Norman St. John- Stevas, leader of the House of Commons, who return to the back benches. Into his place as the man who manages the government's business in the lower chamber goes Francis Pym who gives up his job as defense minister.

Mr. St. John-Stevas incurred Mrs. Thatcher's wrath by adopting a moderate or "wet" approach to economic questions in the Cabinet and by making a number of errors of judgment in arranging the work of the Commons.

The prime minister has dealt with him summarily. He loses his additional job as minister for the arts. It is seen as a mark of Mrs. Thatcherhs displeasure that Mr. St. John-Stevas was not moved to another post in her administration.

Mrs. Thatcher's unyielding attitude to her colleagues is also reflected in Mr. Pym's move from defense to leadership of the Commons. Although it is a move up, Mr. Pym earlier confronted the Prime Minister over her wish to impose defense cuts. He threatened to resign if the cuts were made, and got his way.

Now he is being replaced as defense minister by John Nott, who gives up as trade secretary, a job in which he demonstrated that he is a strict monetarist and opponent of all who prefer the "wet" approach.

Mr. Nott has been told by Mrs. Thatcher that the defense portfolio must be used to promote the sale abroad of British arms and military equipment as a way of sustaining the overall defense budget.

He is succeeded at the Ministry of Trade by John Biffen, another monetarist, who as chief secretary to the treasury under Mrs. Thatcher, has been a determined advocate of cuts in public spending and keeping a firm grip on government borrowing.

The two senior ministers apart from Mr. St. John-Stevas, who are stepping down -- Angus Maude, paymaster-general, and Reg Prentice, minister for social security -- do so at their own request.

A few new appointments suggest that Mrs. Thatcher still has talented people who do not entirely share her economic views, but they are to relatively modest posts.

The Prime Minister's intention, according to Whitehall observers, is to strengthen the impression that she will absolutely refuse to execute economic "U-turns" in 1981.

Her harsh treatment of Mr. St. John- Stevas is widely seen at Westminster as a salutary warning to any senior colleague who argues with her determinedly and adopts a line of approach similar to that of the former Conse rvative prime minister, Edward Heath.