Top state regulators urged Congress yesterday to prevent steep rises in local telephone rates by requiring American Telephone & Telegraph Co. to give up local subsidiaries before key decisions are made on splitting up the Bell System's multibillion-dollar holdings.

Without legislative actions to guide the landmark break-up of AT&T, local telephone rates could rise by as much as 200 percent, state officials told the House telecommunications subcommittee, which is holding hearings on the recent Bell System antitrust settlement and efforts to revamp the nation's communications laws.

State regulatory officials contended that an initial breakup of AT&T would assure fair, arms' length negotiations over the Bell System's $137 billion in assets and would help prevent exorbitant rises in local phone rates.

John E. Bryson, head of the California Public Utilities Commission and one of the officials from 11 states testifying yesterday, termed this his "most important single recommendation."

The proposal was among several raised at the start of a month of hearings before the House panel. A Jan. 8 antitrust accord with the Justice Department requires AT&T to divest itself of 22 local subsidiaries, including the Chesapeake & Potomac Telephone companies based in D.C. that serve Virginia, Maryland, West Virginia and the District.

Meanwhile, a coalition of citizen groups, including the National Citizens Committee for Broadcasting and the Consumer Federation of America, endorsed legislation introduced yesterday by Rep. Ronald Mottl (D-Ohio) that would set up a corporation to represent consumers in telephone matters. Under the plan, the group would be funded by $5-a-year voluntary membership charges and members would be recruited through mandatory fliers stuffed into local and long distance telephone bills.

Mottl and NCCB Executive Director Samuel Simon suggested that without careful crafting the settlement is likely to result in sharp, quick rate increases. NCCB, Simon said, would ask a judge here overseeing the settlement to appoint a "consumer expert" to assess the consequences of the divestiture plan on ratepayers.

Subcommittee Chairman Timothy E. Wirth (D-Colo.) questioned Bryson and other state regulatory officials closely about the proposal to split up AT&T before dealing with its massive holdings, but he did not endorse their recommendation.

In an opening statement, however, Wirth expressed concern about safeguarding the operating phone companies when they are severed from the Bell System, to make sure they "are not relegated to offering the most labor- and capital-intensive and least profitable services."

Since the announcement of the historic AT&T antitrust agreement, numerous officials have warned that an unfair division of Ma Bell's assets and liabilities could impose stiff burdens on the new phone operating companies that could lead to higher local rates.

"To the degree the BOCs Bell operating companies are inadequately compensated by AT&T for the loss of assets, the difference will have to be made up through higher rates for basic telephone service," said Bryson, who devoted much of his testimony to the issue. "It appears that AT&T may not intend to provide fair compensation--or any compensation at all--to the BOCs for the dedicated assets of which they would be deprived . . . "

The hearing was repeatedly marked by assertions from state utility regulators that phone rates may double or triple in coming years unless safeguards are instituted to deal with the AT&T antitrust agreement.

"Its implementation, unattended by remedial congressional legislation, could result in precipitous and unnecessary increases in local telephone rates and substantial encroachment upon federal and state regulatory jurisdiction," said Edward F. Burke, Rhode Island commission chairman and president of the National Association of Regulatory Utility Commissioners.

Among other issues cited at the hearing was a new fee established by the AT&T antitrust accord to compensate local phone companies for allowing long-distance firms, including AT&T and its competitors, to connect their calls into the local networks. State regulators regard these access fees as a means of holding down local rates and are seeking a role in setting them.