Taiwan's ruling Nationalist Party has announced a major shake-up, apparently designed to promote more young leaders and improve its foreign and domestic reputation following severe diplomatic setbacks.

The reorganization brings to prominence several party members in their 30s and 40s, including some natives of Taiwan in a party led by refugees from the Chinese mainland. It also opens the way for democratic reforms such as a more independent judiciary.

U.S. diplomats and opposition politicians on Taiwan have reacted cautiously but favorably to the changes, which may have great bearing on the way Taiwan continues its unofficial but crucial relations with the United States after the American Embassy moves to Peking on March 1. In particular, the sign of continued government interest in expanding civil liberties will help prevent difficulties in relations with the human rights-conscious Carter administration.

"I find the changes encouraging," said Kang Ning-hsiang, a Taiwan-born legislator and a leading member of the opposition to the Nationalist, or Kuomintang, Party. He cautioned, however, that there has been no change in the government system, which automatically fills the legislature with a majority of Nationalist officials representing mainland provinces no longer under their control.

Also, some of the Nationalist officials promoted in the change do not appear to be supporters of democratic change on the island, and an effort to tie some opposition politicians to alleged Communist spy rings still continues.

Wu Chen-sai, president of Taiwan's Central Daily News, was made deputy secretary general of the party in the reorganization.Wu appears to have had ties to internal security forces and to have been involved in the interrogation of a woman recently arrested for subversive activities.

Legislative elections, scheduled for Dec. 23 but postponed when Washington announced it was normalizing relations with Peking, now appear to have been put off indefinitely. Some candidates say they have been told they may be reimbursed for their campaign expenses, a sign the government does not plan to hold the election any time soon.

The new appointments in the party reflect an ongoing debate between conservatives, many of them in their 70s, who feel the party must grasp power firmly, and liberals, usually younger, who think the party can only survive if it broadens its base to include youth and the Taiwn natives. President Chiang Ching-kuo, the son of the late Generalissimo Chiang Kaishek, has skillfully balanced the two sides.

"This latest shake-up indicates they are getting rid of some of the old fogies," said one diplomat. "Also it shows they are trying to strengthen the system by making their own party more broad-based, rather than increasing the chances for the opposition to hold seats in the legislature."

Among the more significant appointments is that of Lawrence Chen, 42, as director of the powerful Party Organization Department. Chen is a former New York-educated scholar now turned politician. As deputies he will have Chu Chien-chang, 51, a political science professor, and Hsiao Tientsan, 44, a native-born Taiwan legislator.

Kuan Chung, at 39, and extremely young for a party full of septuagenarians, will become deputy chief of the Party Coordination Committee. He is a political scientist who often writes on mainland Chinese affairs. Hsu Chui-teh, 58, another native-born Taiwanese, will be director of the Social Affairs Department.

Chen in particular has been an advocate of liberalization of elections and political activity, and would be in a position as organization director to promote other young party members who share his views.

Some diplomats are troubled, however, by continued attempts by some party leaders to harass opposition politicians. Hsu Hsin-liang, the elected magistrate for Taoyuan County and a leading opposition figure has been under some pressure because of a demonstration he led recently. He welcomed the latest Nationalist Party shifts enthusiastically.

A recent celebrated spy case, in which some Taiwanese were arrested for alleged links to the Chinese Embassy in Tokyo, seemed to some opposition politicians to be an attempt to jail a key opposition leader in Kaohsiung, Taiwan's second largest city. The leader, former mayor Yu Teng-fa, apparently met with the spy ring leader, Wu Tai-an, but rejected his overtures.

According to the available evidence, Wu seemed to have a grudge against some police officials and organized the underground group in revenge.