That engine is definitely not a K7; the seal on the counter-shaft is flush with the case, while the K7 protrudes outward, and the shaft has no groove. What someone has done is install the K7 630 sprocket on the earlier motor, and secured it with a circlip as it lacked the threaded holes for the early style retainer. The K7 front sprocket and rear sprockets are mounted about 10mm further outboard than earlier models, so an early motor in a K7 frame causes a 10mm misalignment, as is evident from the side wear on your sprocket. You can get either an off-set front sprocket, an off-set rear sprocket, or fit an earlier sprocket carrier onto the K7 rear wheel.