The government's decision to expel a foreign correspondent for the first time since 1977 has reaffirmed the view here that the past year of political volatility has shaken the authorities' confidence in their tight control of this island republic.

The government of Prime Minister Lee Kuan Yew gave no reasons for refusing last month to renew the press credentials of American journalist Patrick Smith, bureau chief of the weekly Far Eastern Economic Review. But it is believed that the prime minister was angered in part by Smith's coverage of the detention of Lee's political opponents under the internal security act.

The expulsion decision underlines the contrast between the city-state's international reputation as a parliamentary democracy and what is seen here as the government's intolerance of criticism of its defense, educational or political policies.

The Review's editor in chief, Derek Davies, commented that Singapore had "once again revealed that beneath its evident intelligence and rationality, there still lurks a disproportionate sense of insecurity."

The government's sensitivity has been heightened since late 1981, when the ruling People's Action Party lost a parliamentary seat to an opposition candidate for the first time in nearly two decades. J.B. Jeyaretnam's victory for the Workers' Party in a low-income district, Anson, visibly shook the ruling party's complacence.

In the "post-Anson" climate of last year, Lee tightened control of the local press union and of party ranks. His preoccupation with reasserting unchallenged power and resolving the question of a stable succession was reflected prominently in the government-supervised daily, The Straits Times.

Assuring foreign investors of a stable internal political climate is one of the prime minister's top priorities. Much of the foreign investment on which the state of 2.4 million people survives is from the United States, and last year Lee traveled to Washington, London and Australia to further close ties with conservative leaders who share his staunchly anti-communist views.

Lee has restricted the foreign press previously in his more than 20 years in power. In the 1960s and 1970s he detained or expelled a number of journalists on charges of involvement with alleged communists or attempting to subvert the state through distorted reporting. These journalists included representatives of The Financial Times of London and the British weekly The Economist as well as of the Review.

Despite these measures in the past and the increasingly restrictive atmosphere inside Singapore, however, the six-year absence of anything more than verbal attacks on the foreign press corps had misled some into thinking that the prime minister was willing to withstand wider political debate in the international arena.

Diplomatic sources said last summer that the then-director of internal security, Lim Chye Heng, was "infuriated" by a story by Smith on the detention of 10 alleged religious activists. The story concluded that since the arrests, "it will be more difficult for the government to deny what many in opposition are already convinced is at least partly the case: that in the post-Anson political climate, and in anticipation of more by-elections widely expected this year, the government is anxious to reduce the credibility of the opposition by identifying it at least loosely with extremist causes."

The public correspondence that ensued between the internal security department and the Review in its letter column indicated that so soon after the unexpected loss of the Anson seat, the government was particularly sensitive to such close analysis of its moves.

While he continued throughout 1982 to cover routine economic and commercial news, Smith also wrote features on the release after 19 years of detention of prisoner-of-conscience Lim Hock Siew, the controversy over rigorous tracking of schoolchildren and the restructuring of the domestic press under government direction.

Other members of the foreign press corps also have covered some of the stories that apparently troubled the government, and the decision to act against Smith surprised the diplomatic and press community. Recently The Financial Times, The Economist and the Italian news agency ANSA had decided to open full bureaus in Singapore, and the Paris-based International Herald Tribune launched the printing of its Asian edition here last September. These arrivals had encouraged the view that the government's stated ambition to become an international communications center was sincere, but that assumption now seems premature to some.

Davies was informed of the government's decision on Jan. 21 by the prime minister's press secretary James Fu Chiao Sian. Four days later a high official of the Singapore government professed complete ignorance of the de facto expulsion in a private conversation, suggesting that the decision was made by Lee with little consultation.

Smith, a 33-year-old New Yorker, worked on the business page of The New York Times before joining the Review in the spring of 1981. Prior to that, he was an editor with Business Week. Upon expiration of his existing work permit from the Singapore government, he plans to return to the Review's Hong Kong office to await reassignment.