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Sadly, 1.75-2" may be the best your M77 can do. They are not known for fine accuracy (I've got 2 of 'em).
It's probably best to tinker and test and tinker and test...
I'd start by relieving the wood on the side of the barrel where it is rubbing most, then shoot it to see if it made a difference.
If that didn't help, then relieve more wood around the barrel and re-shoot.
If that didn't help, then completely relieve the wood to free-float the barrel and re-shoot.
Be aware that many skinny barreled rifles need pressure from the tip of the stock for best accuracy. If your groups suddenly get really bad, you will need to use epoxy bedding compound to replace the wood you removed.
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