SINGAPORE -- After more than 25 years of ruling this prosperous island city-state with an iron hand, Lee Kuan Yew has announced that he will step down as prime minister later this year to make way for younger leaders, who promise a more relaxed style of governing.

But with Lee vowing to stay active in political affairs, many Singaporeans and foreign analysts say they are uncertain how far the new leaders will be allowed to move away from authoritarianism to accommodate a growing desire for change among young, affluent professionals.

In many ways, the planned transition here shows that Singapore has been affected by the movement toward political liberalization that has toppled Communist regimes in Eastern Europe -- even though Asia's authoritarian governments have long held that this part of the world is different from others.

Asians, according to their argument, have an ingrained cultural preference for a strong, paternalistic ruler and tend to be more respectful of authority than Westerners. And, so the argument goes, most authoritarian governments here have responded to popular needs by successfully managing their countries' economies rather than embarking on political liberalization.

East Asia and Southeast Asia are home to some of the world's fastest-growing economies, as well as to some highly authoritarian governments. Singapore is an example of this combination.

By linking itself with the major economies of the world and becoming a financial and trading hub, Singapore overcame its geographic vulnerability and lack of natural resources, and now boasts the second highest per capita income in the region, next to Japan. This city-state, with only 2.7 million people, is widely referred to as one of Asia's "Little Dragons," a newly industrializing country alongside Taiwan, Hong Kong and South Korea.

But economic prosperity has come at a price in terms of political freedoms. When Singapore was made independent in August 1965, it was threatened by an active Communist insurgency and torn by racial and religious divisions. Lee, through his People's Action Party, purged the country's suspected Communist leaders, with most jailed under the sweeping Internal Security Act. Decades later, government critics suspected of Communist leanings still face detention without trial.

Opposition parties, while legal, are not encouraged, and its leaders are often legally harassed. This month, J. B. Jeyaretnam, head of the opposition Workers' Party, lost a libel suit brought by Lee for remarks Jeyaretnam made during a 1988 rally, and was ordered to pay a large fine to the prime minister.

The press, too, is limited. Arguing that restrictions are necessary to avoid inflaming racial and religious tensions in this culturally diverse country, the government has warned the press that its role is to help build popular support for official policies and not to act as a watchdog like the Western press.

The circulations of two foreign publications, the Asian Wall Street Journal and the Far Eastern Economic Review, have been severely restricted and their reporters barred from the country after the government accused them of "interfering" in Singapore's domestic politics.

Many observers, including Western diplomats and some Singaporeans, say the country's new middle class has grown tired of the government's intolerance of dissent and the perceived micro-management of everyday life.

The government, for example, limits the number of new automobiles that may be purchased, and fines citizens heavily for jaywalking, littering and for failing to keep public toilets clean. It has launched "politeness" campaigns and takes an active interest in the lives of citizens, drawing complaints from some young Singaporeans.

To be sure, the ruling party is still popular, but each subsequent election has shown a small erosion of its public support, most recently in 1988 when it won 61.8 percent, its lowest total ever.

The 66-year-old Lee has announced that he is stepping aside, and his designated successor, Goh Chok Tong, the current first deputy prime minister and defense minister, is promising leadership that is less domineering, more open to accommodating differing viewpoints and more suitable to the demands of a modern and affluent society.

"Today's Singapore is very different from yesterday's Singapore," Goh said in an interview at the Defense Ministry, where his office is located. "We started off as an independent nation born out of separation from Malaysia. We went through struggles, and communal conflicts and so on, to build today's Singapore.

"The people are much better off today, well-educated. There is a larger pool at the top who can contribute very much to policy-making, formulation {and} analysis. So one of the changes I have in mind is to get this group to play a bigger role in building the next stage for Singapore. Hence I have chosen to have a more decentralized style of government."

Comparing himself with the domineering Lee, Goh opted for a wartime analogy. "I think Mr. Lee was more like a revolutionary leader -- a strategist, a propagandist, a commander, a commando -- all rolled into one. I think I am more like a commander-in-chief of a conventional army in peacetime."

Goh conceded that his style is being prompted partly by rising popular resentment of authoritarianism. "People think that we overgovern. They resent it." He said many younger Singaporeans believe that the government is "very good, very efficient but very autocratic."

One of Goh's first tasks will be to convince skeptics that the leadership change, now scheduled for November, will be genuine. Lee will stay on in the cabinet as a senior minister without portfolio, and many here question whether the soft-spoken, bespectacled Goh will be able to assert his consensual style over the dominant Lee.

The premier himself aptly described his own driving personality two years ago, when first discussing his plan to step down. He said: "Even from my sick bed, even if you are going to lower me into the grave, and I feel that something is going wrong, I'll get up."

Goh will also have to contend with emerging young leaders drawn into civilian jobs from the military and led by the prime minister's son, Brig. Gen. Lee Hsien Loong. The younger Lee is believed to hold views on governing that are closer to his father's than are Goh's.

The perception here is widespread that Goh will be a caretaker prime minister until the younger Lee, known as "B.G.," takes over.

"What chance has Goh got, wedged in between Lee Kuan Yew on one side and B.G. Lee on the other side?" asked Jeyaretnam, the opposition leader. He said the announced plan for a more open style "is all just for public consumption. A lot of foreigners are taken in by it. . . . . It's for public image."

Goh, in the interview, seemed aware of the perception of many that Lee will continue to play a dominant role here. While noting that Lee is a "dominant man," Goh said he did not think Lee would "be overbearing in giving his views." Over the last few years, Goh said, Lee has stepped back to allow him and the younger ministers more control over daily affairs.