Taiwan appeared stunned today by the quick and sudden American decision to cut off all diplomatic and most military ties with the National Chinese-governed island of 17 million people.

President Chiang Ching-Kuo issued a bitter statement saying the U.S. decision to recognize Taiwan's Communist foes on the Chinese mainland "has not only seriously damaged the rights and interests of the government and people of the Republic of China (Taiwan), but also has tremendous adverse impact upon the entire free world."

Although Taiwan residents has been prepared for a eventual cutoff of formal relations with the United States since President Richard Nixon visited Peking in 1972, there had been few hints that the break was imminent. Officials and citizens of the capital, Taipei, who were rousted out of bed by the news of Carter's impending announcement said they were shocked.

"I didn't think it would happen so soon. I don't believe it. Don't ask me what the impact will be," said one official.

The suddenness of the decision, conveyed to President Chiang at 2 a.m. and carried on the radio about 10 a.m. local time, seemed to wipe out at least temporarily any appreciation of the concessions Carter won from Peking in order to ensure Taiwan's security.

American officials have said the agreement will allow continued limited sales of U.S. arms to Taiwan. This is expected to greatly help maintain the strength of Taiwan's active duty force of 500,000 troops and its much larger ready reserve.

Carter's assurances that active U.S. trade and cultural contacts with Taiwan would continue did not appear to mollify Chiang. In perhaps his strongest attack ever on Taiwah's longtime principal ally, Chiang said the United States alone would bear full responsibility "for all the consequences that might arise as a result of this move."

"The United States government has repeatedly reaffirmed its assurances to maintain diplomatic relations with the Republic of China and to honor its treaty commitments," Chiang said. "Now that it was broken the assurances and abrogated the tready, the United States government cannot be expected to have the confidence of any free nations in the future."

"The United States extending diplomatic recognition to the Chinese Communist regime, which owes its very existence to terror and suppression, is not in conformity with her professed position of safeguarding human rights and strengthening the capabilities of the domestic nations so as to resist the totalitarian dictatorship."

Leading government officials were called to special meetings at dawn today to assess the impact of the American decision and to plan Taiwan's next move. In the past, some Taiwan commentators have suggested such extreme measures as building an independent nuclear weapons capability, allying with the Soviet Union of declaring the country's formal independence from the Chinese mainland, but such drastic measures have met little favorable responce, from Chiang or his predecessor and father, the late Chiang Kai-Shek.

One leading editor, Chu Liang-Chen of the English language China News said the decision showed "Carter's human rights campaign is hypocrisy."

Taiwan government officials have acknowledged in the past that they anticipate no Chinese attempt to invade the island by force in the near future. Peking's forces are ill equipped in many areas and do not have nearly enough landing craft to make such an invasion possible. Some concern has been expressed in the past, however, that the Chinese might at some point be able to organize a naval blockade of the island as it became progressively isolated diplomatically from the rest of the world.

Peking seems preocuppied by Soviet threats to its northern border and its troubles with Vietnam on its southern border. Chinese officials have indicated that the Soviet threat remains their number one concern and that the eventual liberation of Taiwan is a secondary consideration. Active Chinese efforts to introduce espionage agents on the island through Taiwan's open-door policy toward overseas Chinese are likely to continue, however.

As far as trade and economic contacts with the United States are concerned, some island officials have taken heart from the example of its relations with Japan. After Toyko broke off relations with Taiwan and recognized Peking in 1972, trade with the nationalist-held Chinese island actually increased.

The Carter administration did little in its first year to move toward normalized relations with Pking and some Chinese leaders complained to Western visitors that the Americans were cragging their feet. In the last year, however, the administration has cut the number of American servicemen on Taiwan almost in half, down to about 750 including Department of Defense civilians. The drop was espicially sudden since troop levels on Taiwan had remained stable in the Carter administration's first year.

The announcement is not expected to have any immediate impact on the island nation's booming economy. The Carter administration has promised American businessmen on several occasions that their considerable investment of an estimated $500 million on the island would be protected under any normalization agreement. International bankers here have said during all previous major shifts in Washington's relations with Taiwan that they expected nothing to happen that would cool their eagerness to lend money for Taiwan projects.

The psychological impact on the Taiwanese if diffucult to predict, however. The latest development may increase the gradual but steady trickle of well-to-doo Taiwan residents moving businesses and bank accounts to the United States. Many have send children to American schools in part to increase their families' chances of a secure future abroad.

Taiwan has been preparing for an eventual cutoff of diplomatic relations with the United States since President Richard Nixon visited mainland China in 1972. The Shanghai Communique-the agreement to move toward normal Peking-Washington ties announced during that visit - stunned Taiwan but brought no mass exodus of people or any decline in foreign investment.

Instead Nationalist Chinese leaders launched twin campaigans-solidifying their American ties to soften any adverse effects of U.S. recognition of Peking and rapidly building the island's economic independence through a series of major highway, port and nuclear power plant projects.

The projects had the additional advantage of drawing in more American investors, many of whom became out-spoken advocates of Taiwan's case in the U.S. Congress.

The normalization will require the sorting of a number of complex legal issues involving continued U.S. economic relations with Taiwan. There are dozens of agreements involving vital matters such as land rights for American aircraft and banking relationships that would have to be modified to preserve American are dozens of agreements involvign vital matters such as landing rights for American aircraft and banking relationships that would have to be modified to preserve American investment and economic relations with Taiwan under the changed diplomatic circumstances.

The announcement adds a volatile element to legislatice elections on Taiwan scheduled for Dec. 23. Some independent candidates opposing the slate of the dominant Kuomintang, or Nationalist Party, have suggested privately that the government should reassess its hardline policy toward the mainland in order to stave off a military invasion.

Even the indepdendents have not been very enthuiastic about any deal with communist leaders on the mainland who might seek to change Taiwan's economic system.

The Nationalist Chinese government retreated to Taiwan in 1949 after losing a 22-year-old civil war with the Communist Party. The Communist government called off efforts to invade the island then and also failed to follow up a massive shelling of nationalist-controlled islands just off the China coast in the late 1950s.