ULSAN, SOUTH KOREA, AUG. 18 -- Restive factory workers today had one of their greatest victories in South Korea's recent labor strife, as 2,000 police officers faced off against more than 10 times that many angry workers, and the police gave way.

The workers' success was capped later when a high government official indicated that management would concede to the workers' primary demands.

After a tense hour-long standoff on a country road outside this southeast coastal city, the police yielded without a rock or tear gas grenade being thrown. They removed their roadblock and let workers of the giant Hyundai industrial group march 12 miles into Ulsan and hold a rally at the local stadium. The procession into the city was led by commandeered trucks, forklifts and a fire truck.

The workers received a tumultuous welcome in the gritty factory city. By early evening, however, the mood had soured. Workers carrying staves virtually occupied the city and blocked every major intersection, forcing traffic into back streets and alleys. They held their positions until nearly midnight, despite shouts of angry motorists and occasional fistfights.

At the rally, Labor Vice Minister Han Jin Hee, dispatched from Seoul, told about 30,000 workers that Hyundai management is prepared to settle on two key labor demands:

Recognition of worker-elected unions at Hyundai subsidiaries and of a Hyundai group-wide union association. Among South Korean companies with unions, most are pro-management organizations, often registered by petition of fewer than 40 workers. The top demand in nearly all of the more than 200 current labor disputes is formation and recognition of democratic unions elected by the rank and file. The breakthrough concession by Hyundai could set a national pattern for large industrial firms.

Wage increases, which the government spokesman pledged the Hyundai management would settle by Sept. 1.

All Hyundai operations, disrupted earlier by strikes and parts shortages, have been shut down by a company lockout, in response to workers' occupation of the Hyundai subsidiary's shipyard after closing yesterday. It was not clear whether the Labor Ministry official's announcement meant that operations will be resumed, but some people at the rally apparently thought that the Sept. 1 deadline for a settlement meant there will be no work -- and no pay -- until then.

A third labor demand, that the company's 81-year-old founder and honorary chairman Chung Ju Yung resign, fell on deaf ears, as expected.

Of Ulsan's 600,000 people, one in eight works for the Hyundai companies based here, but until early this month, none of the Hyundai companies had a union. With the outbreak of labor disputes in early July, however, Hyundai officials quickly recognized promanagement unions.

The developments here, while only part of South Korea's troubled labor scene, may set an example for other large companies. South Korea's two other big auto and truck makers, Daewoo and Kia, are still shut down, for lack of parts, they say. The strike fever also hit downtown Seoul today with a walkout by workers at the Lotte Hotel, the city's largest.

President Chun Doo Hwan said today that "both management and labor should exhibit a spirit of compromise. Workers' demands should be met if they are justifiable, but one at a time, not all at once."

Opposition politicians have made similar pleas for settlement of labor issues, and emphasized the need for democratic unions, a subject government spokesmen have avoided. But the Labor Ministry's role in the Hyundai dispute raises the possibility that the government may be siding to some extent with progressive labor policies. If so, this would leave corporate management without the official support it has received in the past.