TAIPEI, TAIWAN, JULY 15 (WEDNESDAY) -- Taiwan's President Chiang Ching-kuo decreed an end yesterday to the martial law that his ruling Nationalist Party imposed nearly four decades ago.

Chiang pointed out that a new national security law would replace the decrees on which the martial law was based. Among the new law's provisions is permission for formation of new political parties to compete with Chiang's. At the same time, it requires that they, like the Nationalist Party, be anticommunist and support the constitution and national unity.

Opposition politicians objected that the new law maintains many of the old restrictions, but western analysts and some independent political scientists said the lifting of martial law was a major step toward liberalizing Taiwan's authoritarian system.

These observers said that the most important change was to end trials of civilians by military courts. Under the military system, the chances of civilians successfully defending themselves were limited.

The new decree also removed the military from its role as censor, placing that responsibility in the hands of civilian officials. The new guidelines call for a judge to be provided with a specific reason for censorship of publications.

In a related announcement, the Defense Ministry said that 23 prisoners in military jails were released yesterday and that 70 others were given reduced sentences. It said another 144 had been freed earlier.

Western observers speculated that Chiang, in lifting martial law and releasing prisoners, hoped to secure increased support for his party as he moves toward a transfer of power.

Chiang, 77, is the ailing eldest son of the late president Chiang Kai-shek -- who fled with his followers from mainland China in 1949 after defeat by the Communists. The president has said he will not be succeeded by another Chiang family member.

According to western observers, Chiang is attempting to broaden his base of support, in part by expanding the political role of native Taiwanese. More than 80 percent of the island's population of 19.5 million is in this category.

Since Chiang Kai-shek imposed martial law in 1949, a strong native Taiwanese middle class has developed that is demanding change and greater representation in the government.

A second reason for the lifting of martial law, western observers said, was to gain greater support from the United States, which is Taiwan's main trading partner and supplier of arms.

Only a handful of nations now extend official diplomatic recognition to Taiwan.

The United States broke formal diplomatic links with Taiwan when Washington established official ties with the China mainland in 1979. The American Institute in Taiwan, an unofficial body that the United States established to handle its relations with Taiwan, issued a statement yesterday welcoming Chiang's move as "a historic step in the direction of greater political liberalization and democratization."

{In Washington, a State Department spokesman said the move was "an important event" in Taiwan's quest of "increased democracy and respect for human rights."}

But opposition politicians said the move was only a first step. They said that much remained to be done, for example, to reform Taiwan's National Assembly, only one fifth of whose members are elected. Most seats are held by Nationalist stalwarts who were elected in 1947 for life -- and who now have an average age of 80.

The president is indirectly elected by the assembly, and some opposition politicians are now expected to call for direct presidential elections. Some already have said the ruling party should divest itself of its many business interests, which, they argue, give it an unfair financial advantage over any alternative parties.

The new security law aims in part at curbing the movement for independence that has received widespread support from native Taiwanese. Despite the objections from opposition politicians, some old-line Nationalist politicians, military men, and police officials say Chiang has gone too far in liberalizing the system and fear that his moves could result in instability and a loss of their influence.

So far, however, Chiang has moved with skill to bring about peaceful, gradual change, western analysts said. They contrasted this with the South Korean example, where violence has forced the pace of change. A veteran Taiwanese journalist noted, however, that Chiang has created expectations that might be difficult to fulfill.