The Environmental Protection Agency, under pressure from White House inflation fighters and the nation's largest oil, chemical and auto companies, is preparing to relax its standard for urban smog.

The action, which would significantly increase the amount of smog cities may allow in their air, comes after nearly a decade of bitter political struggle and little measurable improvement in smog levels.

Of the country's 105 urban areas, only two -- Honolulu and Spokane, Wash., meet the health standard for smog set in 1971. Many cities have such dirty air that they may never comply with the law, short of drastically limiting automobile traffic and closing down industry.

Faced with a head-on collision between economic interests and environmental health, EPA Administrator Douglas Costle is expected this week to raise the allowable level of smog by 50 percent -- from.08 to.12 micrograms per cubic meter of air -- a down-the-middle compromise between business executives who want a.16 level or higher and environmentalists who prefer to tighten the current rule.

Such numbers are meaningless to the average worker caught in a smoggy traffic jam, but they translate into billions of dollars in cleanup equipment, especially for oil, chemical and auto companies -- costs which business leaders say they will pass on to consumers.

The relaxation of the standard means that 20 cities, rather than two, would be judged to have clean enough air, as far as smog goes. More than 80 cities, however, including Washington, New York, Los Angeles, Houston and Denver, would still be forced to adopt stringent limits on automobile and industrial pollution.

In those cities, faced with a choice between clean air and new industry, even the new, relaxed smog standard could have a profound effect on local economies, and could force a change in the transportation habits of millions of Americans.

In the 1977 Clean Air Act amendments, Congress gave EPA the power to cut off federal sewer and highway funds and stop industrial growth in cities that don't clean up their smog. Previously, EPA had been unable to enforce rigid smog standards.

The latest battle in the long war over smog comes at a time when environmental regulations are under strong attack as too clostly. The expected relaxation could be interpreted as partial victory for White House inflation fighters Alfred Kahn and Charles Schultze, who intervened personally with Costle to change the standard..

However, that intervention has become an issue. Environmentalists, who recently sued Schultze and Interior Secretary Cecil D. Andrus over White House "interference" in strip-mine regulations, are ready to go to court claiming that President Carter's advisers illegally influenced the smog standard.

Underlying the political and economic issues is a tangle of conflicting evidence on the health effects of smog. This has divided the scientific community. The American Petroleum Institute, which has led the fight against a strict standard, has sued EPA for allegedly suppressing a study attributing 80 percent of the nation's smog to natural vegetation.

Neither industry nor environmental groups would be satisfied by the relaxed standard. The oil industry has rallied against the current standard as a possible "permanent bar to new energy development." A.12 level, says an API spokesman, means "extensive social and economic disruption" and "does not provide any substantial relaxation of impossible controls in many areas of the country."

Fred W. Bowditch of General Motors warned of employe layoffs and widespread inflation if a strict standard is adopted. He said even a.10 level "would cost the nation up to $19 billion in one year, with the prevention of only annoying or discomforting health effects to an extremely small, sensitive sugment of the population."

However, Robert Rauch, an Environmental Defense Fund attorney, predicts "regulatory chaos" if the smog standard is relaxed. "Industry will say, 'Why should we comply with any regulations when we can get them changed?' Auto companies, for instance, will try to get emission standards weakened. Costle is opening a Pandora's Box.'"

Rauch says a.12 standard "would have virtually no margin of safety" for people who might suffer from respiratory problems, and that a higher susceptibility to infection would be a result of breathing smoggy air. It would not protect against the combined effects of smog and other pollutants, and would exempt about 20 smoggy cities from requiring citizens to keep their cars' pollution equipment working, he added.

In the nine years since Congress passed the Clean Air Act, smog has proved to be the most intractable of the five air pollutants for which the government set health standards. EPA regularly issues news releases boasting of reductions in sulfur dioxide, carbon monoxide and particulates (smoke and dust). But smog, first measured as photochemical oxidants and now as ozone, its main component, is a painful subject.

Originally, states had until 1975 to meet health standards for all five pollutants. But EPA soon realized it wasn't enough to put catalytic converters on new cars. It began to file lawsuits against cities like New York and Washington to force them to limit automobile use severely through parking bans, bridge tolls and other means.

Cities and states, joined by auto companies and other industries, rebelled. In 1977, Congress amended the act, setting new deadlines. States would have until January 1979 to give EPA firm plans for meeting the standards by 1982. The dirtiest cities could take until 1987 to meet standards if they immediately adopted unpopular programs like car inspection and maintenance, forcing consumers to repair inefficient catalytic converters.

But since about half of the smog in the air can be traced to non-automobile sources, it isn't enough for states to require inspection and maintenance, special bus lanes, staggered work hours, van pools and other transportation controls. They've got to crack down on industry, EPA said, and that, Costle observed recently, is "the crunch."

Chemical plants, dry-cleaning shops, auto-painting operations, and virtually every part of the oil industry, from drilling and refining to gas stations, would have to purchase expensive equipment and alter traditional practices to contain the hydrocarbons which react with sunlight to produce smog.

Already worried about urban deterioration, states are chafing under such orders. Costle last June proposed a.10 standard -- a 25 percent relaxation -- and the further relaxation to.12 is expected to be equally controversial.

The smog issue has caused unprecedented controversy within EPA. The agency's official science advisory board three times rejected the criteria document on which the standard is based, calling the health risk assessments "largely speculative."

But another panel of scientists, experts in smog, found no reason to relax the standard at all, citing breathing problems and increased chances of infections for asthmatics and other sensitive people at levels ranging from.07 to.38.

Industry maintains that sensitive people should just stay indoors during smog episodes, because it costs too much to base a standard on their problems.

Costs are a major issue in the smog controversy, although Congress indicated that health effects were to be the sole criterion for setting standards. EPA estimated the cost of meeting a.10 standard to be $6.9 billion to $9.5 billion a year -- including industry equipment, consumer expenses and government programs.

However, the White House regulatory analysis review group, under Schultze's direction, projected a $14.3 billion to $18.8 billion-a-year cost -- a doubling of EPA's estimate, making smog the most expensive regulation the government could adopt this year. (American Petroleum Institute estimates range up to $33 billion a year.)