Israel, furious over Austrian Chancellor Bruno Kreisky's state reception to Palestine Liberation Organization Chairman Yasser Arafat, today recalled its ambassador to Vienna for consultations.

In a sharply worded official protest, the Israeli foreign minister, Moshe Dayan, told Kreisky his meeting yesterday with Arafat was "a demonstrative act against the state of Israel and the Jewish people."

Kreisky, Arafat and former West German chancellor Willy Brandt ended three days of talks today in Vienna, and the Austrian leader said the meetings had been "very, very informative," Reuter reported. The three men, who conferred for more than 10 hours during Arafat's visit, expressed "extreme concern" over Israeli settlements in occupied Arab territories. They described them in a communique as a grave impediment to peace.

[The Austrian government did not immediately react to Israel's criticism of the meetings or its decision to recall its envoy.]

The Cabinet, in a unanimous vote, ordered the Israeli ambassador to Austria, Yaacov Doron, to return immediately. Moreover, in an unusual display of bipartisanship, Prime Minister Menachem Begin and opposition Labor Party leader Shimon Peres planned to issue a joint statement in the Knesset Monday condemning the Kreisky-Arafat meeting.

The Israelis appeared as incensed about the official state reception given Arafat upon his arrival Friday night as the fact that Kresisky, who is chairman of the Socialist International's Middle East Committee, met with the Palestinian leader.

The director general of Israel's Foreign Ministry, Yosef Ciechanover, summoned Austria's charge d'affaires here. Peter Wilfing, and read to him a statement of deep concern and strong protest."

The statment said, "The official invitation anf reception to the head of the socalled Palestine Liberation Organization is a demonstrative act against the state of Israel and the Jewish people. The declared aim of [the PLO] is the destruction of Israel, and its method is one of premeditated planning of murderous attacks against the civilian Jewish population -- men, women and children."

Kreisky, greeting Arafat at the airport, embraced the PLO leader, who later was the guest of honor at a dinner hosted by the Austrian chancellor and attended by top Austrian officials and Vienna-based Arab diplomats. As an official guest. Arafat stayed at the Imperial Hotel, which was heavily guarded by Austrain police and security agents.

Israeli diplomats said they were particularly concerned about the precedent of a Western head of state according official state honors to Arafat, and the growing trend of Western European nations toward lining up with the Palestinian cause, both officially and informally. The European Common Market foreign ministers last month condemned Israel's policy of building civilian outposts in the occupied West Bank.

Also greeting Arafat in Vienna was former West German chancellor Willy Brandt, chairman of the Socialist International, who was in the Austrian capital for a meeting of the North-South Commission, which is discussing ties between industrial and developing nations.

An Israeli Foreign Ministry spokesman noted, however, that Brandt does nothold office in Germany's would be leveled at him.

The last time Israel recalled one of its ambassadors as a protest was in September 1978, when Kreisky, in an interview wh a Dutch newspaper, referred to Begin as a "political grocer" and a "little Polish lawyer from Warsaw or w wherever." Kreisky, sky, who was born Jewish but is now an agnostic, has long been critical of Zionism and supportive of Palestinian independence.

Foreign Ministry officials dismissed suggestions that the manner in which today's protest was -- intended to softened the impact. They voted that Dayan, recovering from an operation to remove a malignant tumor, coulld not issue the protest personally.

Israel's Labor Party, which has close ties to the Socialist International meanwhile took pains to disassociate itself from the Arafat-Bandt-Kreisky meetings. Peres said there is a national consensus in Israel that the PLO seeks the annihilation of the Jewish states and that the meeting only served to increase Arafat's prestige.

A formal protest is expected to be made by the Labor Party at the July 20 Socialist laders' conference in Stockholm.

For his part, Kreisky said in Vienna that "my friend Shimon Peres evidently is misinformed about what's going on in the Plo."

The chancellor said he viewed his meeting s a continuation of the Middle East dialogue he initiated last year, which led to meetings in Vienna between Peres and Egyptian President Anwar Sadat.

Kreisky and Brandt last year coauthored the controversial "Vienna Paper which called for Israeli withdrawal in the West Bank to secure boundaries and the recognition of the right of Palestianians to participte in the determination of their own future.