Citing public concern about the appearance of conflict of interest, the Treasury has terminated early a contract with a prestigious Wall Street law firm it hired last January to do legal work on a possible New York City bankruptcy.

Assistant Secretary Roger C. Altman testified yesterday that the Treasury and Debevoise, Plimpton Lyons & Gates agreed early this month to "limit their contract to coverage of work to date and the final wrapping up of work now nearing completion. All work will be finished by March 31."

Altman testified before a House appropriations subcommittee that the agency "continues to be satisfied that no improprieties or conflict of interest were involved."

The Washington Post reported earlier this month that a former partner and two associates of the Debevoise firm have joined the Treasury in recent months and that one of the associates was the chief link between Debevoise and the Treasury. None of the three former Debevoise lawyers had any role in the decision to hire the firm.

Treasury General Counsel Robert Mundheim said that decision was reached by him and Deputy Secretary Robert Carswell. No bids were solicited, a procedure that is common when work must be done quickly, Mundeheim has said. The Treasury engaged Debevoise, Plimpton in January but no contract was signed until March 10.

The original agreement set a ceiling of $150,000 on payments by the Treasury, but the contract the agency and the law firm finally signed limited Treasury payments to $100,000 because of the early termination.

Sen. William Proxmire (D-Wis.), chairman fo the Senate appropriations subcommittee dealing with the Treasury's New York City operations, asked the General Accounting Office to investigate the hiring of the law firm. Proxmire's concern prompted the Treasury to cancel the agreement.

Proxmire is also chairman of the Senate Banking Committee which must consider the administration's plan to guarantee up to $2 billion in long-term New York Cityborrowings to keep the city from going bankrupt.

Altman also said that the Treasury's New York office paid four individuals who did not work on New York problems, although the individuals originally were assigned to New York questions. The practice has been stopped. Altman noted that 20 Treasury employees regularly worked on New York but were not paid for from New York funds.

The New York office is funded by the interest the city pays the government on the short-term loans the Treasury has been making the city since late 1975.