Lawyers for distributors of the Yugo are accusing representatives of Toyota Motor Co. Ltd. of using extortion to prevent dealers from selling the subcompact car in New York and California.

The accusation, which some auto industry officials yesterday called the ugly outgrowth of fierce competition in the U.S. small-car market, is contained in a lawsuit filed on behalf of Yugo America Inc. in U.S. District Court in Los Angeles.

The Yugo is made in Yugoslavia; Toyota is Japanese, and produces cars here and in Japan.

Toyota denied the charges, saying through a spokesman: "We are currently reviewing Yugo's complaint in detail. However, Toyota denies engaging in any purported illegal activity alleged in Yugo's complaint."

The suit charges Toyota's U.S. subsidiaries, Toyota Motor Sales U.S.A. and Toyota Motor Distributors Inc., of threatening to ruin the businesses of two California Toyota dealerships and one Toyota dealership in New York that also had signed contracts to sell the low-priced Yugo.

Also named in the suit is Robert McCurry, senior vice president of Toyota Motor Sales.

"There were certain threats that were made" against the plaintiffs that could be characterized as extortion, said Bruce Thall of Philadelphia-based Sprague & Thall, the law firm representing Yugo America.

The Toyota-Yugo dealers were told that their shipments of Toyota vehicles would be canceled or delayed and that they would be put out of the running for any additional Toyota franchises, Thall said.

There are an estimated 170 Yugo dealers in the United States.