KUALA LUMPUR -- Malaysia is in the midst of a growing Islamization movement, and the country's Southeast Asian neighbors are worried about the government's ability to control it.

In Singapore and Indonesia, government officials, diplomats and political analysts have voiced concern in recent weeks that the Islamic resurgence here in Malaysia may embolden Moslem extremists in those two countries.

Singapore is home to a Malay-Moslem minority that maintains close links to Malaysia; Indonesia is the world's largest Moslem country.

Increasingly, officials in those two countries are raising questions about Malaysian Prime Minister Mahathir Mohamad's approach to the Islamic movement here. Mahathir has tried to outmaneuver the Moslem extremists by embracing the Islamization drive as his own.

Malaysia is a multiracial society of 16 million with a slight Moslem majority. About 48 percent of the population are ethnic Malay, and almost all the Malays are Moslem.

Begun as a student-led movement in the 1970s, the Islamic resurgence has rapidly gained respectability here as many of those Moslem student leaders graduated and entered the political mainstream, including the ruling party.

Although Malay Moslems are almost entirely Sunnis, many of those involved in the Islamic resurgence say that one of the driving influences has been the Shiite revolution in Iran.

Ayatollah Khomeini's revolutionary brand of antiwestern Islam apparently has a strong appeal among young Malays, and many of them have traveled to Iran to study the revolution on trips arranged by Tehran or by an extremist group in Malaysia.

Over the past decade, more students have enrolled in Moslem religious schools, many new mosques have been erected around the country, and many more women walk the streets of the capital wearing traditional Islamic veils, according to longtime residents. The government has also established an Islamic bank to operate on Islamic financial principles, such as not charging interest on loans.

"Before we sent our students abroad and we were afraid they would come back and be hippies," said Rosna Majid, a journalist for the Utesan Malaysia newspaper. "Now we are afraid they will come back and be dakwah {a proselytizing Moslem}. Now the way people are covering themselves is different. The older people just use scarves, but younger women are covering themselves like the Iranians."

Although most analysts here seem unconcerned about the spread of Iranian influence because of Iran's policy of confrontation, the government is treading delicately. Certainly in the eyes of its neighbors, Malaysia appears to be accommodating the Islamization movement.

That policy so far appears to be succeeding. In the last national elections, in 1986, the government held the Parti Islam Se Malaysia, or Pas, a Moslem opposition party that wants to make Malaysia an Islamic state, to a single seat in the 177-seat parliament.

But many analysts, and officials from Singapore and Indonesia, are wondering whether the Malay government, by accommodating the movement, is encouraging the fundamentalists to escalate their demands.

"Mahatir appears to be kowtowing to the fundamentalists," said one western diplomat in Singapore. "There is a feeling that Mahathir is riding the tiger of Islamic fundamentalism, but not really controlling it."

This diplomat and others cited a series of recent incidents that have raised questions about where the movement is headed. In Johore Bahru state, across the causeway from Singapore, officials have proposed changing a state law so non-Moslems as well as Moslems could be flogged publicly with a cane if caught committing khalwat, or "close proximity" between the sexes.

A few weeks ago in Kuala Lumpur, a respected Islamic scholar proposed changing the constitution to have Islamic law, or sharia, prevail when it comes into conflict with Malaysia's adopted English common law code.

"From a Singaporean perspective, they are very concerned about what's happening in Malaysia," said another western diplomat in Singapore. "Almost weekly some state is announcing tougher Islamic measures."

The Malaysian government's response has been the mirror image of the reaction of officials in Indonesia, which with 160 million people is the world's largest Moslem country.

Indonesia has pursued a tough campaign to depoliticize Islam. In recent years, the government of President Suharto enacted a series of restrictions, such as forcing the major Moslem-based party to adopt the national secular ideology of Pancasila, while building up moderate Moslem leaders. Suharto also launched a crackdown on the extremists, many of whom were arrested after a series of bombings.

As a result, Indonesia has won widespread praise in the region for succesfully defusing Islam as a factor in Indonesian politics.

But on Oct. 5, an Indonesian Justice Ministry official was quoted as saying Indonesia will incorporate far more Islamic law into future legislation because almost 90 percent of the population is Moslem.

Baharuddin Lopa, quoted in the Jakarta Post, said future penal codes would be based more on Islamic law than in the past to make them more acceptable to the people. Such a change would mean tougher punishment for adultery and murder, he said.

"We face difficulties with Malaysia," said Abdurrahman Wahid, the head of Nahdatul Ulama, a conservative council of Islamic teachers in Jakarta. "I ask them, don't follow the appeasement policy too much. The fundamentalists will demand more and more. Now they demand caning, and after 10 years they will demand cutting off hands."

Malaysian officials in Kuala Lumpur said the fears are misguided.

"The government has delved more into Islamic matters because it feels the people want these things," said Kamarudim Mohamad Nor, an official of the ruling United Malays National Organization, known as UMNO, and a member of the World Assembly of Moslem Youth. "If they do not counter this sentiment, then people will swing to Pas. Rather than lose to Pas, you might as well become more Islamic yourself.

"This is what UMNO wants the non-Molsems to understand -- you are better off having moderates like us institute the Islamization," he said.

Political analysts and religious leaders said the resurgence was born mainly of a youthful desire to preserve some of the trappings of traditional rural Malay life in the face of rapid growth and development.

"The resurgence of Islam here started long before anyone knew Khomeini was in the world," said Subky Latif, a spokesman for Pas.

"But of course their victory {in Iran} gave us new spirit that Islam can achieve victory." He said the party has helped "a few" young people travel to Iran.