Catholic University will drop from Division I of the NCAA to Division III for the 1981-82 academic year and, as a result, will lose Jack Kvancz, its basketball coach and athletic director, at the end of this season, informed sources, said yesterday.

University President Edmund D. Pellegrino will announce Tuesday the move from Division I -- which allowes full scholarships on the basis of athletic ability, and a recruiting budget -- to Division III, which allows aid to athletes based strictly on financial need. The move, spearheaded by first-year President Pellegrino, has reportedly been in the works for the last six weeks.

Contacted at home yesterday, Kvancz, coach at CU the last five years, said, "Right now I have no comment to make but I think something will come forth from the university very shortly."

Ironically, the announcement will come on the day Catholic plays in its first NCAA Division I playoff game. In spite of an 8-18 record, the Cardinals qualified for the eight-team ECAC South playoffs and will play at top-seeded Old Dominion Tuesday night in a first-round game.

Catholic has been in Division I the last four years. Kvancz came to the Northeast Washington school from a job as an assistant coach at Brown, his alma mater, because the school was moving from Division II up to Division I and because he was told the construction of a new gym was imminent.

Although the plans for that facility have been drawn, fund-raising has never gotten off the ground and Catholic continues to play in ancient Brookland Gym, built in 1919 as a temporary 2,500-seat facility.

Seven times in the past, Kvancz has publicly expressed frustration with the lack of progress toward a new facility. Reportedly he and Pellegrino have locked horns over the gym and the CU athletic budget since Pellegrino succeeded Dr. Clarence C. Walton a year ago.

It was Walton who made the move from Division II to Division I in an effort to drum up alumni support for athletics, something that has never materialized. That lack of support, combined with spiraling costs, are reportedly the two major reasons Pellegrino wants to get out of Division I.

Catholic's athletic budget for the current year is about $80,000. Kvancz and his top assistant, Ed McNamara, are the only full-time coaches at the school. When CU drops to Division III, its athletic budget could be reduced to as little as $10,000 annually, since the school would be required to field only four athletic teams.

Kvancz, 32, is highly respected in coaching circles even though the Cardinals have never finished above .500 during his regime. Kvancz has increased the toughness of the schedule each season he has been at Catholic. "We're still searching for an identity," he said.

He reportedly turned down a chance to become head coach at Harvard two years ago because he still believed Catholic was going to build a gym.

Although Kvancz would not comment yesterday, sources said that both he and McNamara will seek jobs elsewhere at the end of the season.

One source said that Kvancz could be in line for the job at George Mason if John Linn, coach there the last 10 seasons, decides to give up coaching.

Additionally, many of the players Kvancz recruited are expected to transfer so they can remain in a Division I program and on scholarship.