TOKYO, AUG. 3 -- South Korea today rejected a North Korean proposal for mutual troop reductions but proposed that foreign ministers from the two nations meet in September for wide-ranging peace talks.

The two nations have not held ministerial-level talks since the Korean War left the peninsula divided in 1953, officials in Seoul said. The South Korean government today suggested that while both foreign ministers are at the United Nations in New York next month they should discuss troop strength, confidence-building measures and a possible summit meeting between Korean leaders.

However, the South Koreans insisted that the talks be bilateral, while North Korea has demanded three-way negotiations including the United States. With that major difference still separating the two sides, South Korean officials and diplomats here were not optimistic that Seoul's latest proposal will bear fruit.

"Part of the whole game here is propaganda," one diplomat said. "Neither side wants to appear to reject anything out of hand."

Still, observers said both sides may be somewhat more flexible than in the past because of the Olympic games scheduled to take place in Seoul in September 1988 and because of recent political changes in South Korea.

In Washington, State Department spokesman Charles E. Redman called Seoul's proposal "far-reaching and flexible" and said the United States fully supported the proposal.

North Korea wants to host some of the games that have been awarded to Seoul, and to court world opinion toward that end, may make some concessions, diplomats said. Last month Pyongyang proposed multilateral talks that would lead to dramatically smaller armies on both sides of the Demilitarized Zone.

North Korea now fields more than 800,000 troops and South Korea more than 600,000, with 42,000 U.S. troops allied with the South Korean Army. North Korea said that within five years both sides should reduce to 100,000 soldiers and the United States should then withdraw its forces.

North Korea also said it would unilaterally demobilize 100,000 troops this year as a sign of good faith.

The South Korean Foreign Ministry, however, said yesterday that three-way talks run "counter to the principle of self-determination."

South Korea's government is under pressure at home, however, to at least appear to be moving toward peace talks. The government has promised free elections for the fall, and reunification is a deeply emotional issue for many Koreans.