Chase Manhattan Bank, the nation's third largest, abruptly stopped issuing Master Charge credit cards but will continue to process Visa, its chief credit card rival.

A spokesman for Chase said the bank made the decision after "an analysis of operating costs" showed that Master Charge was "not going to be a profitable enough" venture for the bank.

Citibank, the second biggest bank in the country and Chase's chief rival, carries both Master Charge and Visa.

Chase has carried Master Charge since 1977, although it has been issuing Visa (then known as BankAmericard) since 1972.

A Chase spokesman would not say how many Master Charge or Visa cardholders the bank has, but said the number of Master Charge holders was "in six figures, but barely."

The spokesman said that an outside data processing firm has handled Master Charge billings since the bank began to offer the cards. "The intent was to convert the processing inside," the spokesman said. Chase processes Visa account on its own computers.

Master Charge holders with Chase were informed of the bank's decision with the regular February billing. Chase Master Charge cards are no longer valid, and the holders were told to cut up their cards immediately to avoid confusion.

James Wooden, a vice president at Merrill Lynch, Pierce, Fenner and Smith said Chase's decision to drop Master Charge is further indication of the divergent directions being pursued by New York's two biggest banks.

Citibank is making a big play for retail business, while Chase is eschewing the small customer in favor of larger accounts. Citibank, for example, has installed dozens of expensive, computerized, 24-hour banking outlets that perform most banking services needed by individuals, including accepting deposits and loan payments, doling out cash from checking or savings accounts and providing up-to-the minute account information for depositors.

Citibank officials say that while the so-called Citicard centers are not making money, depositors are showing and increasing preference for machine transactions. Nearly a third of all retail business is conducted through the automatic tellers, officials said.