Saudi Arabia and Kuwait have frozen multimillion-dollar loans to the World Bank to protest the denial of observer status to the Palestine Liberation Organization at an upcoming annual joint meeting of the World Bank and the International Monetary Fund, Kuwaiti Finance Minister Abdel Rahman Atiqi was quoted as saying today.

"Denying the PLO observers status has compelled us and Saudi Arabia to freeze principal loans to the World Bank," Atiqi told the Kuwaiti newspaper Al Qabas.

Saudi government officials had no immediate comment on the report, but Atiqi said Saudi authorities had joined Kuqait in the action.

[A World Bank spokeswoman said Friday that Saudi Arabia had given no indication yet that it planned to withdraw an offer to lend the bank $402 million. She said loan agreement had not yet been signed, although the terms basically have been worked out.]

[The spokeswoman, Carol Stitt, said the Kuwaiti government had forbidden a Kuwaiti company to participate in underwriting a loan of 150 million West German marks (about $86 million), but that the loan was going ahead with other partners. Stitt said Kuwait had not explained its action.]

[According to the World Bank, the PLO was denied observer status at the joint session with the IMF last year, but no decision on the issue had been reached yet this year.]

The Arab newspaper Asharq Al Awsat reported Friday that Saudi Arabia and Kuwait were reacting to a U.S.-sponsored move to deny the PLO observer status.

The paper said the two countries might freeze more planned loans if the PLO's attendance at the October meeting were blocked. It said the United Arab Emirates were expected to join any future freeze on lending to the bank.

The issue of PLO attendance at World Bank-IMF meetings is a particularly sensitive one for the United States, which is the bank's largest contributor. The administration has run into some difficulty getting congressional approval for contributions because of some congressmen's objections to the bank's activities and political outlook.

The World Bank and the IMF are principally involved in lending money to Third World countries for development projects. The bank has not disclosed exactly how much Saudi Arabia and Kuwait have contributed to World Bank loans, but both countries reportedly have participated significantly.

Moreover, members of the Organization of Petroleum Exporting Countries, including Saudi Arabia and Kuwait, account for nearly 16 percent of the bank's current debt of $27 billion.

Sources close to the World Bank contend that any decision by Arab nations to freeze loans to the bank will hurt the poorer Third World countries that depend on the money much more than the United States or other supporters of the move to exclude the PLO. A freeze would also limit Arab influence in the World Bank in the future, the sources said.

The PLO's request to attend the October meeting as an observer reflects its current drive for recognition and acceptance by international organizations.