Equitable General Corp. of McLean said yesterday it is cancelling its plan to merge with Great Southern Corp. in favor of a deal with Gulf United Corp.

Sweetening an earlier offer. Gulf United said it would pay $51 cash for part of Equitable General's stock and acquire the rest in exchange for a new issue of convertible preferred stock.

Great Southern officials, however, hinted they might make another counter offer, keeping alive the bidding for the McLean insurance company.

In the past six months Equitable General has had several merger offers, but the field not apparently has narrowed to Great Southern and Gulf United, both Houston-based insurance holding companies.

Several weeks ago, Equitable General and Great Southern announced agreement in principle to merge, with Great Southern acquiring part of Equitable General's stock for $45 cash and the remainder for preferred stock.

Without communicating with Great Southern, Equitable General said yesterday it had "terminated" that agreement.

Under terms of the newest offer Gulf United will buy up to 1.3 million shares of Equitable General $51 cash. The remaining shares will be traded one for one, for a new Gulf United convertible preferred issue, paying a $3.58 per share annual dividend.

Each share could be converted at anytime to two shares of Gulf United Common, which has traded lately in the $15 range. Under a sinking fund arrangement, Gulf United would have to buy back one-third of the shares after 10 years, then redeem at least 20 percent of the shares each year at $50 a share.

The total value of the transaction would be equivalent to about $140 million in cash.

Equitable General executive vice president Frank Eslinger said his company's board of directors has accepted the offer, but a final agreement must be negotiated before the merger can be submittd to stockholders for ratification.

Great Southern President Jimmy C. Greenwood expressed surprise at the Gulf United-Equitable General announcement and said his company was not warned that is agreement to buy Equitable General was being cancelled.

Greenwood said Great Southern will consider making anew offer. Any changes will be in the non-cash portion of the bid he said, apparently ruling out a continuation of the cash bidding war.

Equitable General insiders have insisted on some sort of tax-free exchange of stock that would enable them to avoid paying capital gains taxes on the profits from the sale of their stock.

Another Equitable suitor, Liberty National Life insurance company of Birmingham, Ala., which had bid $50 a share cash for the company, dropped out of the auction last week.

The comiany faces a lawsuit from a fourth bidder, American General Insurance of Houston. It alleges Equitable General executives failed to disclose their merger talks with other firms in buying back a large block of Equitable General stock acquired by American General in an unsuccessful take-over attempt last year.

All of te companies seeking to merge with Equitable General have indicated they would keep the company's headquarters in McLean.