A group of Rahway (N.J.) State Prison inmates helped three very senior citizens in a South Amboy nursing home celebrate their 107th, 106th and 101st birthdays with cakes, gifts and letters from government leaders, including President Reagan.

"We're isolated in here and we know what it's like to be stuck," said Norman Watt, a convicted murderer and secretary of the charitable Society for the Handicapped. "We're away from society and institutionalized like them."Society members, though stuck behind bars, arranged a party for the second straight year for three centenarians living in Oakview Nursing Home. Resident Caroline Smith turned 107 Saturday, Mary Stochel became 106 on Tuesday and Maria Muschinsky turned 101 on Aug. 11.

"We arranged for all their birthday fixings and messages - cards, proclamations and certificates, including one from the president - and we sent them perfume and solicited to have the cakes donated," said Watt, 38. "They become a little bit like family."

Watt is one of five Rahway inmates sentenced to life in prison who formed the society and its Project Remembering. The group distributes cards and gifts to the elderly at 37 nursing homes in the state on holidays and birthdays.

The three women appreciated the gesture, nursing home personnel said Tuesday.

Watt said the Society was established four years ago and sends 15,000 cards a year to institutionalized patients, most of whom are elderly.