Gene Berg says it all here :-
http://www.geneberg.com/cat.php?cPath=2990
He says a stock case has .015 - .020" of clearance to allow for cylinder growth. He says to maintain original clearance.
That .020" (0.5mm) would feel quite loose when it's cold. The cylinder and the case expand at different rates & times. That's why the sealing surfaces must be in good condition and sealed correctly (I use Permatex No3) or they leak. That area is notorious for leaking, along with all the other areas on a VW engine.
😉
Good luck
Tony
Country Buggy King & Link Pin Overhauls, Type 1 & 2 King Pins, General Machining.
http://forums.aussieveedubbers.com/viewtopic.php?tid=74138
My car is KO813