Chrysler Corp. Chairman Lee Iacocca warned members of Congress yesterday that the federal government must act "as quickly as possible" to provide financial assistance to his weakened company.

Guarantees for bank loans to the automobile manufacturer are needed by the end of this year because of a cash squeeze Chrysler faces early in 1980, Iacocca said as a House subcommittee opened hearings on the company's financial woes.

Iacocca sought also to defuse talks of bankruptcy as a solution for Chrysler. Because the company's financial condition has deteriorated so much in recent months, Iacocca indicated, bankruptcy proceedings would totally wreck the firm in a "few short weeks."

Indeed, Iacocca asserted, "we're dying out there with just the talk of it," an apparent reference to testimony by a Federal Trade Commission official at recent Senate hearings, where bankruptcy was suggested as an alternative to Treasury aid.

Iacocca's somber plea, which he said was made reluctantly by a proud company, came less than 24 hours after the firm submitted a modified aid plan to the Treasury Department, scaling down its request for loan guarantees to $750 million from an initial level of $1.2 billion.

Treasury Secretary G. William Miller, who rejected immediately the earlier plan as too high, was out of town yesterday. But Deputy Secretary Robert Carswell, who has been dealing daily with the Chrysler matter, said that "on its face," the modified plan appears to "meet one of the key standards" established by the administration -- a lower limit for loan guarantees.

Although House members yesterday expressed mixed feelings about guaranteeing loans to Chrysler, the majority indicated eventual support -- some for the higher amount.

The administration is expected to make a formal legislative request to Congress shortly and most Capitol Hill observers have forecast passage of a loan guarantee package -- early in 1980 if not by the end of the current session, where the agenda already is crowded.

Under diverse questioning from more than a dozen House members, Iacocca said the $750 million figure had been demanded by the Treasury and conceded that he "would feel better" with the $1.2 billion amount.

To help reach the lower figure for guaranteed loans, Chrysler likely will have to sell all or parts of some profitable subsidiaries, iacocca tetified.

Several members of the Banking Subcomittee on Economic Stabilization, which began consideratin of loan guarantees legislation at the hearings yesterday, indicated they might favor the larger amount sought originally by Chrysler.

Chairman William Moorhead (D-Pa.) said he was "totally convinced it would be an error" for Chrysler "not to get enough money to recover its financial health. If Chrysler went bankrupt in the 1980s after getting federal aid that was too small, "it would violate principle and practical politics," Moorhead added.

And the ranking GOP member of the panel, Stewart McKinney (Conn.) said he was "very concerned" about saving Chrysler with "too little . . . if we kill you in the long run."

McKinney said that if Treasury's action in reducing the guaranteed loan request to $750 million requires Chrysler to sell off profitable firms and make the company even more dependent on outside suppliers, such action was "grossly irresponsible."

Iacocca, obviously walking a semantic tightrope and not wanting to offend the Carter administration, said several times that while the "optimum" level of loan guarantees was $1.2 billion, Chrysler probably could make it with the lower figure.

"The original plan was sound . . . but I have committed the company (to the reduction), I don't think I'll fail but it will be difficult. Maybe there will be the sale of assets I don't want," Iacocca stated.

At the same time, Iacocca emphasized that Chryler's current situation is risky and his testimony painted the picture of a company whose fortunes are sliding down hill slowly. In the wake of Federal Reserve Board actions to tighten credit expansion, the financial outlook has been clouded and auto sales are down in the current week, he revealed.

There are "substantial risks" involved in the company's new commitment to raise $1.35 billion from non-government sources, Iacocca added.

But the Chrysler chief said his firm does "not want anything for free . . .

we only ask the guarantee of a loan -- every last dollar of which will be repaid," because of a five-year strategy for turning the company around and restoring black ink to Chrysler's account books by 1981. Red-ink loss entries of some $1.5 billion are projected for this year and next combined.

Proclaiming himself a "strong advocate of the free enterprise system," Iacocca said Chrysler will "compete aggressively in this marketplace of the 1980s with new lines of more fuel-efficient cars and trucks . . . and we will provide secure employment for those 140,000 men and women who are directly employed at Chrysler."

Discussing suggestions of bankruptcy, Iacocca noted that in theory, a Chapter XI voluntary reorganization eases the pressure on immediate cash needs by allowing a rescheduling of debt payments along with possible liquidation of unprofitable operations.

But this would not work for Chrysler, he argued. "Would you want to make a major investment in a new car if you were uncertain about warranty protection and future parts and service, to say nothing of the value of their user car or truck?" he asked the panel.

An announcement of bankruptcy proceedings "would create a virtual halt -- and I mean fast -- in cash flow, as customers do the only honorable thing and cancel orders, as suppliers demand payment for goods on a C.O.D. basis, and as dealers lose their ability to finance their own purchases from the factory," Iacocca said.