In the late 1950s, an ambitious breed of middle-class people began moving into the London borough of Islington here.

They bought cheaply many mid-19th century houses that lacked even such basic facilities as inside toilets and renovated them into stylish town houses.

The newcomers were proud they had preserved these fine Georgian and Victorian squares and terraces, which had been decaying for years through land lords' neglect. Islington, conveniently located just north of the City of London's financial, legal and printing center, was an early embodiment of the word "trendy."

In recent years, however, Islington's new homeowners have been dismayed to discover that the original working-class residents, many of whom have lived there for decades, do not see their new neighbors as "saviors" of the borough. Instead, they have found that they are considered "colonizers" who are punshing an alien class culture on the original inhabitants.

"Gentrification," as this process of middle-class newcomers "improving" working class districts is know, is taking place in many areas of inner London just outside the core of central boroughs - beyond which most tourists seldom stray.

Nowhere is the subject more contentious than in Islington, where the friction between newcomers and longtime residents has been going on for years. It flared up recently with the publication of a report by a residents' group in one neighborhood which said that the borough council should increase its purchase of houses for renovation and rental as public housing in order to limit the further gentrification of the area.

Opponents of gentrification, like James Pitt, the report's author, argue against it on two grounds. First, they say that the conversion of these spacious old houses into single-family residences represents a unacceptable under-use of existing housing resources.

It would be far better, they contend, if these houses - most of which were occupied in their unmodernized state by several households - were converted into self-contained apartments for use by council tenants. Islington has thousands of people on its waiting list for council flats. Overcrowding is an important factor.

A 1975 study showed that about 16 per cent of the borough's esimated 175,000 population lived in accommodation with 15 or more people to each room, compared to the more than 42 per cent of the owner-ooccupiers, who had two or more rooms for each person.

Other indicators of the inadequate housing that contrasts so starkly with the smart, newly modernized houses came from the 1971 census:

Sixteen per cent of the people in the borough had no hot water.

More than 36 per cent of Islington households either had no access to an inside toilet or had to share one with another household.

More than 43 per cent of the households either completely lacked or had to share a bath or shower.

The second argument against gentrification, which attracts most of the attention and has certain peculiarly English overtones, is that the influx of professional and middle-class people into established working-class neighborhoods is socially disruptive.

Pitt argues that the goal of a wide "social mix" is a misplaced ideal, because the middle-class newcomers, who still represent a small minority of the borough's population, dominate social and political life. They also have social values not shared by the majority.

Newcomers have also been anxious to remove small factories and workshops from their neighborhoods, which does not help the employment situation in a borough that, proportionately, lost twice as many jobs as all of the middle classes has also brought businesses such as antique shops and boutiques, sometimes replacing corner grocery shops and small pharmacies.

While other factors are also involved in the decline of these small shops and factories, in Islington their departure has coincided - and is thus identified - with the arrival of the middle classes.

There are other signs of social change. One doctor was quoted as saying. "You couldn'g even get a decent Camembert when I first came here. Now there are delicatessens all over the place."

The other side of the coin is typified by an elderly woman quoted by Pitt: "She said she'd lived here all her life, but when she went out now she didn't like to open her mouth because she was afraid of seeming stupid."

Even glimpses of the insides of the "tarted up" middle class homes annoy some of the long-time residents.

Both Watson and fellow council member N.P. Riddell - along with Pitt middle-class "immigrants" into Islington - believe that the worst manifestations of gentrification are over.

Before a 1974 law gave security to tenants of furnished apartments. Islington was infamous for cases of landlords evicting tenants in order to empty houses that could be sold for huge profits. When they could not legally evict tenants, they often pressured them in ways considered by many to be harassment, especially when used against elderly people.

At the very least, landlords neglected to undertake essential repairs and maintenance.

The collapse of the property boom in 1972-3 also dealt a blow to speculators. It was at this time that Islington council, with 100 per cent labor membership, began to buy threatened properties and convert them into public housing. Islington Council has one of the most ambitious "municipalization" programs in Britain, although recent government spending cuts have imposed limits.

Riddel believes that Pitt and other critics overlook the benefits of gentrification. He sees professional people contributing their expertise to community organizations without necessarily dominating them. In his local tenants association, "the wishes and views of long-standing residents mesh in very well with those who no doubt would be labeled part of the gentrification process."

Pitt conceded that the newcomers have improved the esthetic quality of parts of Islington and that new developments have fit in very well with the old houses. The problem, he says, is the British colonial way in which the middle-class people have gone about their improvements.

Moreover, the gentrifiers were preserving houses when government public housing policy, on the national and local level, was concerned primarily with new construction, often in the sort of projects now discredited as socially undesirable. With the newcomers now dominating Islington's ruling labor party, their more "aware" social values are being put into practice in the borough's housing projects.

Islington's population has declined steadily since the beginning of the century, and is likely to contunue to do so. One factor that somewhat puzzles officials and others is where the working-class people displaced by the new homeowners are going.

Many, they think, go farther out to the fringes of London, where they are more likely to be able to afford their own houses. One cause for resentment of Islington's gentrification has been parents' realization that their children will never be able to afford the newly expensive houses in their own neighborhoods.