Japanese sources familiar with South Korea increasingly believe the new government will go ahead with the execution of dissident leader Kim Dae Jung, a possibility that has produced a severe strain in relations between Tokyo and Seoul.

Japanese Prime Minister Zenko Suzuki has warned that the dispute will increase pressures for closer ties with North Korea, a prospect highly irritating to the South Koreans. As a result, Seoul's government-controlled press and political leaders have responded with a sharp criticism of diplomatic interfenence.

Press reports from South Korea suggest that the military-backed government there deliberately exaggerated Suzuki's remarks in an effort to rally public opinion for a tough diplomatic battle with Tokyo, which would put the two closest U.S. allies on the eastern rim of China at loggerheads.

Anti-Japanese sentiment in South Korea is still strong among older citizens who recall 35 years of occupation by Japan's imperial armies. One way of rallying public support for the new government has been to picture Japan as still bent on dominating that country. The government of President Chun Doo Hwan seems to have seized on that tactic in the current dispute.

Kim, a often-jailed critic of South Korea's present and former leaders, has been sentenced to death on a sedition charge. The country's Supreme Court will rule shortly on his appeal and most observers expect it to confirm the death penalty. That would place his fate in Chun's hands.

Japanese sources knowledgeable about South Korean affairs tend to believe Chun will not spare Kim's life despite appeals for clemency in Japan, the United States and Europe. The South Korean president is described by these sources as being under strong pressure from military colleagues to order an execution.

"We are growing more and more pessimistic," one of the sources said today.

Kim's fate has become a volatile political issue in Japan, extending far beyond normal left-wing criticism of the government. The Suzuki government is under strong pressure to seek clemency now and to retaliate strongly against Seoul if the execution is carried out.

The issue stretches back to 1973, when Kim was kidnaped from a Tokyo hotel, presumably by South Korean secret agents. An almost certain violation of Japan's sovereignty, the didnaping was brushed under a diplomatic rug by a bague political settlement.

One condition of that settlement was that Kim could not be prosecuted for antistate activities committed while he was in Japan. But his sedition trial in August largely turned on those activities.

Government critics here now contend the South Korean leaders, in their eagerness to stamp Kim as a traitor-in-exile seven years ago, violated the old settlement with Japan and should be punished for doing so.

Suzuki's government will be forced to heed the pro-Kim sentiment here and retaliate against Seoul in some way if Kim is hanged, observers here believe. The prime minister once hinted at reducing economic aid to South Korea but later seemed to step back from that position. e

The latest confrontation occurred last week when Suzuki called in the South Korean ambassador, Choi Kung Nok. In the Japanese version of their talk, the prime minister warned that Kim's death would violently arouse public opinion to the point that Japan would no longer be able to cooperate with the Seoul government.

He also said there would be rising public approval of closer ties with the communist government of North Korea. Any hint of a Japanese deal with North Korea incenses the South.

Japanese accounts insist that Suzuki was not issuing any warning but only trying to explain objectively to the ambassador what Kim's execution would mean in this country.

The South Korean government reacted fiercely. The controlled press quoted officials as describing Suzuki's comments on North Korean relations as "a diplomatic threat that is tantamount to intervening in our domestic affairs."

Other government leaders there claimed Suzuki had openly threatened also to cut off economic aid to South Korea, although Japanese officials say that was not mentioned.

Members of the South Korean Legislative Council, an interim legislature that reflects Chun's views, called on the government to retaliate. One member called Suzuki's remarks to the ambassador a case of "naked blackmail."

The reaction was given large, dark headlines in the Seoul press at the government's instructions. Japanese sources interpreted that as an ominous signal that the Chun government is preparing public opinion for a death sentence on Kim.

A South Korean Foreign Ministry official also lodged a formal protest with the Japanese charge d'affaires in Seoul and asked for a clarification, especially of Suzuki's references to closer ties with the communist government in Pyongyang.

In analyzing the situation after South Korea's sharp reaction, Japanese sources said their government has little leverage in the Kim case and suggested that only the United States, because of its troop commitment there, could dissuade Chun from ordering Kim's death.