In life, Fred Sparks could be a flamboyant and occasionally outrageous character--a foreign correspondent who was the life of the party at the Tokyo Press Club, a professional gag writer who might, after washing his red toupee, hang it out on the line to dry.

In death, he has become the subject of curiosity and controversy: a Jew who--to the surprise of his friends and the horror of his family--has left 10 percent of his $300,000 estate to the Palestine Liberation Organization.

That legacy, currently being fought by two Jewish organizations in Surrogate's Court, the probate court here, has kicked off an unusual legal battle.

On one side, the Anti-Defamation League of B'nai B'rith and the American Jewish Congress are attempting to block the bequest. The PLO, these organizations claim, is a terrorist organization, and to allow money to go to such a group would be "illegal under American law."

On the other side, the PLO and the New York chapter of the American Civil Liberties Union are arguing that a man should have the right to leave his money to whatever organization he chooses, and that to subvert that right is "illegal, unconstitutional and an outrage."

They also claim that the battle, apparently initiated by a judge with a public pro-Israel stance, has no part in the probate process and may set a dangerous precedent.

"The surrogate, if this is allowed, could try to stop gifts to any kind of controversial organization," said New York ACLU executive director Dorothy Samuels.

And both sides note a peculiarity in this battle: were Fred Sparks alive, he could give his money to whatever organization he chose. It is in death that his rights have been diminished.

Fred Sparks died Feb. 18, 1981, after a two-year battle with cancer. He was 65, unmarried and estranged from his family. At the time of his death, he was little known, even within journalistic circles.

But he had been, in the 1950s, something of a name in the business. In 1951, he was part of a group of six reporters awarded the Pulitzer Prize for international reporting for his coverage of the Korean War. A few years later, in a Newsweek profile, he bragged of having had 17 apartments in six years, and talked of a globe-trotting life in which he left laundry in about a half-dozen countries.

At the time of his death, his globe-trotting days were apparently behind him. According to his agent, Lisa Collier, he made his living writing series for international syndication: "The Golden Rockefeller Women," "The Wild, Wild Kennedy Boys."

A book, "The Twenty Million Dollar Honeymoon: Jacki and Ari's First Year," published in 1970, had been trashed by the critics. "This is a piece of garbage," said The New York Times.

Sparks' will, filed for probate in April, 1981, listed as beneficiaries friends and organizations, though no family members. The Overseas Press Club, the New York and Honolulu public libraries were to receive 5 percent of his estate. Catholic Missions, including the Maryknoll Fathers, were to receive 15 percent. The PLO was to receive 10 percent.

The legal questions over the will were initiated by a Surrogate's Court judge, Marie Lambert. Lambert, a controversial figure, had said during her election campaign five years ago that she would place no funds controlled by Surrogate's Court into banks supporting the Arab boycott of Israel.

In a decision entitled Estate of Fred Sparks, Lambert said that "A question has arisen in the court's mind whether such an organization has the capacity, under New York law, to receive such a bequest and whether such a bequest is violative of public policy."

She blocked the bequest to the PLO pending a hearing. That hearing, still unscheduled, will allow representatives of the Anti-Defamation League and Jewish Congress an opportunity to question representatives of the PLO, an unprecedented opportunity.

It is this hearing, however, to which the New York ACLU strongly objects.

"The Surrogate could, if this is allowed, use the occasion of a bequest to hold an intrusive and broad inquiry into the aims and activities and perhaps even membership of an organization," Samuels said. "Say this were a 1960 bequest to Martin Luther King, taking place in Alabama, and the surrogate court there said, 'Martin Luther King advocates civil disobedience and breaking the law and this violates public policy; we think we better put Martin Luther King on the stand . . . . ' "

Spokesmen for the Anti-Defamation League disagree.

"It's a general rule that bequests which are contrary to public policy are illegal and unpermissable," said league attorney David Raim. "It's our belief that the PLO is a terrorist organization with a pattern of killing, in many cases civilians, and that we should not use the courts of the United States to condone murder . . . . It's as if someone left money to a next-door neighbor, on the condition that the neighbor shoot up everyone on the block . . . giving unrestricted money to the PLO is the same thing . . . . "

The legal questions aside, there is, to some, another curious aspect to this case: why Fred Sparks, born Fred Siegelstein, son of a prominent New York attorney, would leave money to the PLO.

The answers cannot come from his family, for in the last years of his life Sparks had little to do with his family. He did not attend his father's funeral, according to his sister, Miriam Greene. Some of Sparks' friends didn't even realize any family existed, so his brief obituary said "no immediate survivors."

Greene, who describes her philosophies as "liberal"--she supported, she notes, the right of Nazi sympathizers to parade in Skokie, Ill., years ago--draws the line at the PLO.

"He was a wicked person," she says of her brother. "I think he had gone crazy."

Friends paint a different portrait. All remember a funny man; a skinny, rabbit-faced fellow who was witty and fast. But some, like Stan Swinton, a vice president at the Associated Press, who covered the Korean War with Sparks, recall other aspects of his personality. They remember a "very soft heart," a generous nature, and, in some cases, a man who was a bit of a recluse.

"He was always a joker, but yet very much a loner--sort of an introverted extrovert," Swinton said. "The essence of him was a very solitary guy . . . . We never discussed politics . . . . There really wasn't much to his conversation. He was witty and amusing, but we never discussed anything serious, never foreign affairs . . . . "

Another close friend, from the early '40s, paints a similar picture. John Groth, an artist, met Sparks when Sparks was an editor of Parade magazine and Groth the art director. Sparks, at that time in his late 20s, did not seem to Groth to have any politics. But Groth does recall something else.

"He was probably the most anti-Semitic guy I ever met in my life," said Groth. "He was Jewish, but he despised all Jews . . . . He was always making cracks about the Jews; worried when a guy came to be hired with a name like North, South, West if they were Jewish guys who had changed their names . . . . "

Of a half-dozen friends interviewed, Groth is the only one who recalls any anti-Semitism. Irene Kuhn, a friend for the last 20 years of Sparks' life, denies it with shock: "Never, never, never!"

Another friend, Moana Tregaskis, widow of war correspondent Richard Tregaskis, says there is no mystery to the PLO bequest.

"Fred Sparks was a specialist in the Middle East, often headquartering in Cyprus," she said. "He learned Palestine children never received an education for lack of money. The PLO, as he saw it and told me several times, were the only ones who were educating the children . . . . Fred Sparks was a man with a very good heart . . . . "

That position is echoed by the trustee of Spark's estate, attorney Elvin Unterman. Though he did not return telephone calls, Unterman, in court papers submitted this week, argued that "Fred Sparks was a man of charity" and that his "true intent" was "to benefit the Palestinian people" with "the PLO more as conduit or trustee."

"Besides the bequest to the Palestine Liberation Organization, Fred Sparks left 25 percent for charitable purposes," the brief reads in part. "Can one believe that this was a man who would wish to sponsor violence on an international scale?"