Iconoclastic Italian playwright and performer Dario Fo and his wife and collaborator, Franca Rame, have been denied visas to enter the United States on grounds that they have engaged in fundraising and related activities on behalf of Italian terrorist organizations.

The decision, which was made Thursday by the American consulate general in Milan after receiving an advisory opinion from the State Department, has drawn the heated protest of producer Joseph Papp. Papp had engaged the left-wing Italian couple to perform their material at the Public Theatre in New York for two weeks beginning Sept. 13.

In a telegram sent yesterday to President Reagan, Papp called the action a "small-minded" one that "gives our democracy a black eye," and he requested the personal intervention of the president to reverse the decision. Fo and Rame had been denied visas once before, in 1980.

Although widely performed throughout Europe, Fo's plays, virulently satirical and sometimes scatological, have only recently begun to get a hearing in the American theater. His best-known piece, "Accidental Death of an Anarchist," was produced last season at the Mark Taper Forum in Los Angeles and has been scheduled for revival in February as part of Arena Stage's upcoming season. It is a topsy-turvy spoof, based on an actual incident in which a bomb-throwing anarchist fell or was pushed from the window of a Milan police station.

Eight monologues that Fo wrote with Rame, "Adulto Orgasmo Escapes from the Zoo," are being performed by Estelle Parsons at Papp's Public Theatre. Critical reaction in New York was mixed, with some reviewers finding the feminism in the pieces outdated by American standards.

Papp said yesterday, "The State Department is making a political issue out of something that is essentially a cultural affair. From most of the productions of the couple's work I've seen in the States, no one has really been able to grasp the comedic nature of their material. You have to get into the wildness of their minds. It's real anarchism in a positive sense. Since Fo and Rame both write and perform, I was interested in seeing their techniques firsthand." The producer said he had also contacted the theater departments of Yale and New York universities and that they expressed interest in having the Italians demonstrate their talents, described by one critic as a marriage of Bertolt Brecht and Lenny Bruce.

According to John Caulfield, press officer in the State Department's Bureau of Consular Affairs, Fo and Rame were denied visas on the basis of section 212 A (28), that part of the Immigration and Nationality Act that excludes from admission to the United States any aliens who advocate anarchism, communism or terrorism or who are affiliated with organizations advocating those views. Caulfield said the couple had been interviewed by a consular official in Milan and had been given the opportunity to discuss their case and present information in their behalf. "Visa decisions are a matter of U.S immigration law," he said yesterday, "and in this case we were looking at information that indicated they were ineligible."

Papp said tickets had not gone on sale for Fo and Rame's appearances, but that he had hired translators and projectionists for the run. Because the couple performs in Italian, Papp had planned to have subtitles flashed on a screen in the course of their shows.

Zelda Fichandler, producing director of Arena Stage, yesterday expressed surprise at the decision. "They're artists and that entitles them to see the world as they see it. On the basis of his art, I can't see any reason to keep him (Fo) out," she said. "I'm glad to see that the State Department thinks art is so potent. That's good news. I never saw a play blow up anything." Arena's production of "Accidental Death" is set to play in the Kreeger Feb. 3 to March 8.

Papp's telegram to Reagan reflected a similar position. "The Rame/Fo plays are already being performed throughout the U.S. without any visible damage. To have the authors present on the boards can hardly constitute a threat to the security of the United States."

Fo, a prolific playwright and a personality in Italy, has described his work as a "preoccupation with ridicule, laughter, satire, irony and the grotesque." He is fond of quoting Soviet poet Vladimir Mayakovsky, who observed that "the end of satire is the first alarm bell signaling the real end of democracy."