Correction Appended

For Big Nurse in ''One Flew Over the Cuckoo's Nest,'' it was a tool of terror, and in the public mind ''shock therapy'' has retained the tarnished image given it by Ken Kesey's novel: dangerous, inhumane and overused.

Despite its poor public image, electroconvulsive therapy, or ECT, is in the midst of a quiet revival. In improved forms, electroshock therapy has gained renewed credibility in psychiatry, emerging as the treatment of choice for the most severe depression when drugs and other therapy fail to help.

While there are no nationwide figures on how often electroshock therapy is used, one indicator is the number of treatments paid by Medicare, the Federal health insurance program for 33 million elderly and disabled people. In 1986 there were 88,847 sessions that were reimbursed, and in 1988 there were 96,276, an increase of 10 percent.

Another sign of renewed vitality is the amount of scientific research being conducted on the treatment. ''In the early 1970's there were only about 125 scientific articles published each year on the topic,'' said Dr. Max Fink, a psychiatrist at the State University of New York at Stony Brook who is the editor of Convulsive Therapy, the main journal on the topic. ''By 1980 there were 150, and by 1988 it had climbed to 250.''

A Pattern of Expansion

Within the last four years in the New York metropolitan area, five hospitals have established new units for electroshock treatments, a pattern experts say is typical of the country as a whole. But manufacturers of the devices used in such treatments declined to give sales figures.

Earlier this year the American Psychiatric Association recommended electroshock therapy for severe depression, and specified precisely when and how it should be used. In May, at the association's convention in New York City, the report giving the recommendations, ''The Practice of Electroconvulsive Therapy,'' was the No. 2 seller among about a hundred titles offered by the publisher, the American Psychiatric Press. The best seller, as it is every year, was the annual review of new developments in psychiatry.

The patients for whom electroshock therapy is recommended by the report are among the most troubling in psychiatry: they are beyond the reach of drugs or other treatment and many are so severely depressed they do not eat, sleep very little and are suicidal. Many suffer from delusions. But in about 80 percent of cases, the report said, electroshock therapy can lift their depression within a few weeks, restoring them to mental health.

''There's no question that ECT is making a comeback, despite its terrible public image,'' said Dr. Richard Weiner, a psychiatrist at Duke University and head of an American Psychiatric Association task force on the treatment. ''It's safer and more effective than ever.''

Treatment Induces a Convulsion

Patients receiving shock therapy are given muscle relaxants and a short-acting general anesthetic. Then a brief pulse of electric current is passed through the brain. The current induces a convulsion, or short seizure. For reasons that are still unclear, the seizure seems to relieve the symptoms of depression in many people.

A typical course of electroshock therapy involves six to 10 sessions, usually given three times a week.

Dr. Weiner and other proponents say the side effects of electroshock therapy, which in its earlier forms included broken bones, heart attacks and memory loss, have largely been eliminated. New methods use lower levels of electric current, which proponents say reduces memory loss. Muscle relaxants and anesthesia prevent the muscle spasms that in the past sometimes led to broken bones.

In the 1940's and 50's electroshock therapy was widely used in mental hospitals, often indiscriminately: patients with problems as diverse as schizophrenia and obsessive-compulsive disorder were treated with it. With the introduction of psychiatric drugs in the 1960's and 70's and the acknowledgment that electroshock had been abused, it fell into disuse; many hospitals stopped using it altogether.

Within the last decade, though, psychiatrists have recognized that medications do not work with many of the most severely depressed patients, while electroshock does, leading to the recent increase in its use.

Long-Term Memory Problems

Despite the changes, critics say, patients can still suffer long-term memory problems.

''Those psychiatrists who use electroshock don't admit it can cause permanent intellectual deficits, not just short-term memory loss,'' said Dr. Lee Coleman, a psychiatrist in Berkeley, Calif. ''I don't think patients ever really know what risks they are taking when they give their consent for shock therapy. It can leave patients as confused and amnesiac as a brain injury.''

Other critics attribute the revival of electroshock therapy in large part to its quickness, a virtue that fits with new efforts by health insurers to save money on hospital costs.

''The use of ECT has increased primarily because insurance companies are pressing to get patients out of the hospital sooner, and they don't want to pay for drugs or therapy that take longer to clear up depression but have fewer relapses than ECT,'' said Richard S. Abrams, a psychiatrist at Northwestern University.

Level of Current Varies