Miffed by increased U.S. grain sales to China, Canada is increasing its grain exports to the Soviet Union, despite a U.S.-sponsored embargo imposed after the Kremlin's troops marched into Afghanistan.

The feud between Ottawa and Washington surfaced yesterday when Sen. Hazen Argue, the chief of the Canadian Wheat Board, said Canada plans to sell all the wheat it can to the Soviets.

Argue said Canada will sell five million tons of grain, and possibly more, to the Soviets this year, but he insisted Canada was following the terms of the U.S.-sponsored partial grain embargo.

He said Wheat Board officials are in Moscow negotiating more sales, mostly for bread wheat.

Argue said the decision to increase sales to the Soviets was made in response to the massive U.S. grain deal with China announced last month. He claimed the United States clearly was trying to supplant Canada and Australia, traditionally the main grain suppliers to China.

In Washington, Agriculture Undersecretary Dale Hathaway denied any violation of the agreement made with Canada and Australia when the two joined the grain embargo. The United States had agreed it would not sell it surplus grain in traditional Canadian and Australian markets.

President Carter's Jan. 4 partial embargo of grain shipments to the Soviet Union has come under sharp domestic political fire as well. Sen. Robert Dole (R-Kan.) and agriculatural groups ranging from commodity exchanges to the American Farm Bureau Federation have demanded that the embargo be lifted.

However, two factors have to be weighed against these pressures. One is the availability of additional grain for export to the Soviets. The U.S. corn crop has been set back this year by a drought and prices of both corn and wheat have been rising steadily. As a result, Department of Agriculture specialists predict that even if the embargo is lifted, the administration will not approve more shipments of grain to the Soviets until the impact of such a move on food prices and on the U.S. livestock industry is evaluated.

Another factor is foreign policy. Some senior aides have advised President-elect Ronald Reagan to link the lifting of the partial embargo to a broader agreement with the Soviets about the Middle East, Afghanistan, and arms limitation.

In explaining Canada's decision, Argue claimed his country was penalized by terms of the U.S. deal with China, which requires the Chinese to first turn to U.S. suppliers for additional grain above the amounts specified in the contract. Another provision requires China to restrict grain purchases from Canada and Australia if it reduces its U.S. purchases, Argue said.

"We said to the Americans, 'If you want us to go along [with the embargo] you have to play ball,'" Argue said. "We don't want you out being aggressive in other markers. If you want us to restrain ourselves in the Soviet market, don't go out and cut us off in some other markets."

"We're not endeavoring to supplant the whole of U.S. sales [to the Soviets]," Argue said."We're not trying to multiply our sales to the Russians by two or something."