A flag system alerting motorists to the availability of gasoline at area service stations moved toward implementation yesterday, probably by Monday.

The Metropolitan Washington Council of Governments began distributing 1,030 color-coded nylon flags yesterday to service stations in the District of Columbia and most of suburban Virginia. Maryland has ordered about 1,500 flag kits for stations in Baltimore and the Washington suburban area.

Under the system, a green flag signifies that the service station has both leaded and unleaded gasoline. A yellow flag means only leaded gasoline is available. A red flag means the station is not pumping gasoline at all.

Council of Government officials said yesterday that Washington and suburban Virginia stations should start flying the flags Monday. Maryland officials said stations in some areas of the state should have the flags by Monday and others will get them later in the week.

The flag kits - containing three 18 inch-by-18-inch flags, a three-foot pole and brackets - cost $8.35 each and are manufactured by the Copeland Co. in Alexandria.

The Council of Governments purchased the 1,030 kits for Washington and suburban Virginia and said it will be reimbursed by the individual jurisdictions receiving them. In Maryland the state is paying for the kits initially. An energy policy office spokeswomen said some of the oil companies have indicated they will reimburse the state for the kits that go to their respective stations.