AFL-CIO President Lane Kirkland last night urged the Carter administration to declare unequivocally its opposition to the creation of a Palestinian state in the Middle East.

The labor leader, addressing an audience of 500 union officials and labor lawyers at a State of Israel Bonds dinner, also warned the administration against weakening its support of Israel in exchange for Middle East oil rights.

"If America were willing to betray its most loyal ally for oil, what would it defend?" Kirkland asked. "What would it have that it worth defending?"

Though he made no mention of it, many in the audience suggested that Kirkland's remarks were prompted in part by the March 1 U.N. Security Council vote calling on Israel to dismantle its settlements in occupied Arab territories.

The United States voted in favor of the resolution. But, two days later, President Carter said the U.S. vote was the product of a communications foulup.

Kirkland derided "some in this country who suggest that the United States ought to 'review' its policy toward the PLO (Palestine Liberation Organization), so as not to offend those whose hands are on the oil spigot."

He spoke about "attacks and pressures from quarters attempting to undermine and destroy the spirit, structure and substance" of the year-old Egyptian-Israeli peace agreement.

Kirkland said "nothing would do more to . . . clear the way for a permanent peace between Egypt and Israel than the unequivocal declaration that American stands against the creation of a Palestinian state dedicated to Israel's destruction.

The labor leader added: "Even if Israel did not exist, the establishment of a PLO state would injure and endanger the economic, political and strategic interests of the United States and the entire Western Alliance.

"A PLO state would be a terrorist state, founded on hatred, employing assassins, kidnapers and bomb-throwers as the administrators and instruments of its foreign policy . . . It would be a pro-Soviet state in the energy heartland of the world.

"To encourage or permit the establishment of such a state in the wake of the Soviet invasion of Afghanistan and the continuing Soviet threat to Iran would be an unmixed disaster to the United States.

The dinner, heavily seasoned with foreign policy, was a testimonial to the AFL-CIO's longtime general counsel, J. Albert Woll.

Woll was cited for his "decades of service to American labor and his devoted support of Israel."