A bid by Middle Eastern investors to acquire the $2.1-billion Financial General Bankshares Inc., was rejected yesterday by the Federal Reserve Board.

But the central bank said that existing multistate bank holding companies -- such as Financial General -- can be acquired along with their interstate banking authority. The ruling effectively turned down a key argument of the Washington company's management, which bitterly opposes the outside takeover proposal.

Thus, the Federal Reserve decision was seen as keeping alive the potential acquisition. A lawyer for the Middle East investors said last night he will "move quickly" on one of several possible avenues to win ultimate approval.

Banking companies now are prevented from operating in more than one state, but Financial General and six other bank holding companies that existed prior to the restriction were allowed to maintain their multistate operations.

The Federal Reserve Board did agree with the Washington company that the central bank could not approve the Middle East investors' proposal to acquire the firm because Maryland's attorney general has ruled that it would violate state law.

Attorney General Stephen H. Sachs ruled Jan. 29 that a Maryland financial institution 'is not subject to an unfriendly affiliation." One of Financial General's key area banks, Silver Spring-based American Bank, is currently a state-chartered institution and the Sachs ruling was based on the potential "unfriendly" takeover of that institution. The Federal Reserve said it could not approve any transaction that violates a state law.

Overall, Financial General is the area's second largest commercial banking firm. Its banks include Union First in Washington and First American of McLean, the largest in Northern Virginia.

Financial General President J. William Middendorff II said last night he is "most gratified" by the Federal Reserve decision. The agency's order avoids "a very lengthy and costly hearing" and "permits us to go forward with corporate objectives," Middendorff stated.

However, Robert Altman, the Middle East investors' lawyer, described the late afternoon decision as only a complication. "It's a problem we can remedy," he added.

Although no decision had been made as of last night on what course of action is now planned on behalf of the Middle East group, Altman suggested several possibilities:

The Federal Reserve could be asked to reconsider its decision on the grounds that the agency did not consider the question of whether the Maryland law, as interpreted by Attorney General Sachs, is constitutional. He said a recent Court of Appeals ruling, in another matter, had found that the Federal Reserve must not presume state law constitutionality.

A modification could be made to the proposed takeover plan -- by requiring the sale of American Bank (the state-chartered institution) as part of the transaction and thereby avoiding the Sachs interpretation.

An appeal could be filed in federal court, seeking to have the Maryland law declared unconstitutional. Altman argued that existing federal law requires -- in a takeover battle -- neither side have an upper hand in the contest. A number of state laws held to hinder or delay tender offer consideration by stockholders have been unconstitutional in recent months, he added.

Martin Thaler, Financial General's lawyer, said last night that any proposal to unload American Bank of Maryland as part of a new takeover plan would be "totally inconsistent with the makeup" of the banking firm, which is concentrated in the metropolitan area. "The idea of... carving away an important part is not in the stockholders' interest," he added.

Any attempt to appeal yesterday's decision would be "time consuming and costly," Thaler added.