Lt. Col. Joseph D. Vasco, the No. 2 man in the Prince George's County police department, was appointed acting chief yesterday for the next two months.

Vasco, a veteran detective and administrator, was recently cleared by county police officials of allegations that he participated in a "death squad" that operated out of the department 12 years ago. The charges still are under investigation by the state police.

The appointment of Vasco came as County Executive Lawrence J. Hogan broadened his search for a successor to Chief John W. Rhoads, who retired yesterday on disability pension.

In addition to three other candidates, Hogan is now reported to be considering Vasco as well as Charles R. Kelly, a top-ranking civilian in the department who, if selected, would come Prince George's County's first first black police chief.

The executive order temporarily naming Vasco to the job came as council members, police insiders and others in the community criticized the selection process used in picking the candidates for chief.

They voiced reservations about three candidates recommended by a selection panel headed by former D.C. police chief Maurice Cullinane. And they criticized Hogan for agreeing to pay Cullinane $4,000 for his work on the panel.

The candidates recommended by the panel were Robert L. Rabe, Deputy D.C. chief of police; Wesley A. Pomeroy, special assistant to the Drug Enforcement Administration and former police chief of Berkeley, Calif., and E. Wilson Purdy, recently fired public safety commissioner of Dade County, Fla.

The interim appointment of Vasco, some insiders say, is a sign that he has the inside track. He would satisfy many Prince Georgians who believe the new chief should come from within the department.

"If the idea is to promote from within, then you have to promote vasco. He has more than 16 years' experience," said Laney Hester, president of the Fraternal Order of Police, the policemen's union.

Denying yesterday that Vasco is the frontrunner, a source close to Hogan said the executive is "taking a close look at Kelly."

But appointment of Kelly, a 46-year-old former Army policeman who became special assistant to Chief Rhoads three years ago, is certain to arouse fierce opposition from within the department.

"The troops will riot over Kelly," said a key police insider. "He was brought in as a token black, with no civilian police experience. He is Rhoads' 'black conscience.'"

The Hogan aide said yesterday that such opposition would not rule Kelly out. "You're never going to make the [police union] happy," he said.

Council members, meanwhile, faulted Hogan yesterday for agreeing to pay Cullinane $4,000 for a list of candidates they weren't sure they like. Three members said they would vote against any of the three on the list.

The three candidates, recommended to Hogan last Friday, have a major drawback, in the eyes of some council members and police officers: they are all outsiders.

Rabe lives in Prince George's County but he is perceived as close to Cullinane, not to the county.

Pomeroy is viewed by many as too liberal.

And E. Wilson Purdy may be too controversial. His recent firing in Florida, reportedly unknown to some selection panel members, is one liability.

"I'm opposed to all three - it's all bad news," said Councilman Floyd E. Wilson Jr., "With the large sum of money we've spent on the education of police officers I don't know why the devil we have to go outside the department to get a chief." He said he would not support Vasco, but backs Kelly.

Council member Sue V.Mills said the panel's three nominees "are so tainted by the money thing (to Cullinane) that we can't take them." She, would support Vasco but not Kelly. "I think this whole selection was made by Cullinane." she added.

"I was disappointed it was not a local man," said Councilman Gerard T. McDonough, who also opposes the three.

The agreement to pay $4,000 to Cullinane, and not the others, Hogan aides say, is not unusual for consulting work. But a source close to the committee said yesterday the $4,000 is only a ceiling on expenses. Cullinane reportedly has decided not to accept any personal payment.

To dispute surrounding the panel has led some council members to discuss setting up a committee to review police chief nominees. Any police chief appointed by Hogan would be approved unless six members of the council vote against him. CAPTION: Picture 1, Former D.C. police chief Maurice Cullinane headed selection panel.; Picture 2, Lt. Col. Joseph D. Vasco, named acting chief, is a candidate for permanent job.