It might help if we could see a picture of the sweater to see how difficult it would be to just leave out a few stitches. If you could take a digital picture of it and show us, that might help.
A question....what size yarn is it using? If the cast on is 124 stitches and that is just the back, it must be pretty small, but if it is the whole body (fronts and back) then the yarn could be bigger and maybe you could go to a smaller yarn weight and swatch it out and see what you'd get per inch and then using math figure out how big it would be at the new gauge. Then you could just make the sleeves and body a little shorter and be in business.....maybe. Probably.
Also if you could show a picture, maybe someone knows of something similar in a small size.
Babies grow really fast too, and unless the baby is a preemie some of them outgrow a 3-6 month size before you can say Jack Robinson. I know some people won't even bother to knit those small sizes. I will say though, that I am not one of them. Last Oct. we had a new preemie DGD and I made her things down to 14" chest. She outgrew them quickly, but they were fun to make, didn't take much yarn, and looked so cute on.