The Southern Railway System, based in Washington, has agreed to drop its objections to the proposed merger of Chessie System and Seaboard Coast Line in exchange for promises from the merged company not to try to block Southern's proposed merger with Norfolk & Western Railway.

Although the Intersatate Commerce Commission, in recent rail consolidation cases, has not been overly receptive to the objections of competing railroads, Southern was the last remaining major rail opponent to the proposed merger of Chessie and Seaboard Coast Lines into CSX Corp.

Southern had asked for a lenghthy list of concessions to compensate it for the loss of freight traffic it claimed would result from the merger. The ICC must rule on the merger on or before Oct. 24.

The three railroads said yesterday that a notice of their agreement would be filed today with the ICC stating the agreement had been reached "which resolves their differences in the proceedings in a manner which they believe to be in the public interest."

Besides their accord not to challenge each others' merger, the agreement also contains numerous other provisions, subject to ICC approval:

CSX will arrange for Louisville and Nashville Railroad (a Seaboard subsidiary) and the Baltimore and Ohio Railroad (a Chessie subsidiary) to sell their shares of stock in the Kentucky & Indiana Terminal Railroad Co., in Cincinnati, to Southern, the primary user of the yard facilities; in return, Southern will agree to let L & N, B&O, and the Chesapeake and Ohio Railway (a Chessie subidiary) use the K&IT facilities and services to allow continued service to their shippers.

L&N will buy an 18-mile segment of Southern's Interstate Railroad (from Norton to Miller Yard, Va.), but Interstate will retain trackage rights and the right to serve mines on the line.

N&W, Southern's proposed merger partner, will get trackage rights over portions of the Chessie System line between Cincinnati, Ohio and Chicago. The rights will shorten and improve N&W's existing route between Chicago and its interchange with Southern at Cincinnati, and will provide a competitive route from Chicago into the Southeast for a combined Southern-N&W, Southern noted. N&W had dropped its opposition to Chessie's merger earlier this year.

As part of the pact announced yesterday, Southern also agreed to drop antitrust and other cases pending in federal courts against Seaboard Coast Lines and its subidiaries and SCL agreed to terminate a damage suit pending in federal court against Southern.

A top ICC official said yesterday the agreement appeared at first glance to be pro-competitive but he expressed some concern about the loss of railroad participation in rail merger cases if they begin to work out deals like this across-the-board and don't participate in the agency proceedings.