The Reagan administration's antitrust chief yesterday pledged to "litigate to the eyeballs" the Justice Department's suit to break up American Telephone & Telegraph Co.

William Baxter, in his first briefing since taking over the post from Sanford Litvack, was also sharply critical of the terms of the proposed settlement pact that the Justice Department and AT&T were working on as Litvack's tenure came to a close last month.

"I was not going sign that settlement," said the former Stanford professor, endorsing the department's historical desire to split up the company. "It did not do the one thing that should be done -- separate all the regulated components of the enterprise from all the unregulated."

Baxter did, however, say he is "always interested in negotiating a settlement" but also noted that no settlement negotiations are under way with Bell System representatives.

Baxter, while noting that he would study recent comments by the Defense Secretary Casper Weinberger urging dismissal of the suit on national security grounds.

"I do not intend to fold up my tent and go away just because the Department of Defense expresses concern," Baxter said.

Baxter's comments indicate that the administration is unlikely to back away from the massive case, which if won could split the world's largest enterprise -- AT&T -- dramatically revamping the makeup of the nation's telecommunications system.

Many political observers had suggested that as a matter of policy, the Reagan administration might be unwilling to continue with the large antitrust cases, such as the suits against AT&T and International Business Machines Corp.

Baxter did say the 11-year-old IBM case has not been "well-handled" by either side. However, he said he had "not spent 15 mintues thinking about IBM" since taking over the division.

Further, the future of the AT&T case, in particular, is apparently solely in Baxter's hands, since his top two superiors, Attonrey General William French Smith and Smith's top deputy, Edward Schmults, have removed themselves from considering the case because of past ties to AT&T.

But despite Baxter's firm opposition to AT&T entrance into unregulated markets, the Federal Communications Commission yesterday approved plans to permit AT&T to enter the a new phase of the mobile telephone business over the complaints of the Antitrust Division, a view Baxter reiterated yesterday.

And, the Justice Department yesterday announced that the department's historic opposition to AT&T's entrance unregulated fields would get another test Monday when a federal judge in New Jersey hears arguments on a request by AT&T to modify the 1956 consent decree between the government and the Bell System. Late yesterday, the department reiterated its opposition to the AT&T request in a brief sent to the New Jersey court.

Meanwhile, the suit concluded its 21st day of testimony yesterday, as government lawyers raised issues surrounding charges that top AT&T officials destroyed documents. The charges were raised with William McGowan, chairman of Washington-based MCI Communications Corp. on the witness stand.

Sworn testimony, given in a deposition to MCI lawyers by an AT&T management-level official, Leigh Tripoli, apparently indicates a massive document-shredding effort by AT&T officials in 1974 when MCI lawyers were about to screen AT&T files.

AT&T Counsel George Saunders blocked introduction of the Tripoli deposition, suggesting that the testimony is not relevant to the government case. Saunders said that a federal grand jury in New York had investigated for two years the charges when they first surfaced five years and had not issued indictments.

Although U.S. District Judge Harold Greene said he would read the deposition and consider whether it should be allowed into the case, government attorneys introduced a March 1973 memo from AT&T official F. F. Stoddard to W. W. Betteridge, which notes that "a shredder is available and in use."

The memo also lays out "guidelines" for record retention, a listing which notes that "our files should not contain any unnecessary proprietary information." The memo also states that "company private" information when discarded should be "destroyed."

Saunders said the Tripoli testimony is "personally scandalous" to the people involved and said its use is "beneath the dignity of the government's trial team. . . . It has nothing to do with this case.

Lead government attorney Gerald Connell said the document destruction question is relevant "to the issue of intent."