Maryland Gov. Harry R. Hughes said yesterday the state has worked out an agreement with county and city officials and the U.S. Department of Transportation in which $974 million in federal interstate highway funds can be used to pay for local transit, highway and bridge improvement projects.

Hughes said the agreement was made possible after Baltimore Mayor William Schaefer and six county executives, including Prince George's executive Parris Glendening, agreed to cancel three interstate highway projects so that the monies earmarked for them could be transferred to high-priority local projects.

The money will be used for a variety of projects including road resurfacing and expansion, bridge reconstruction and an extension of Baltimore's subway.

"This is probably the most significant transportation program in the history of the state," Hughes said yesterday at a joint press conference with state Transportation Secretary Lowell K. Bridwell, Schaefer and representatives of the six counties at the World Trade Center in Baltimore.

Although Baltimore received the biggest share of funds--$325 million--Prince George's was also a big winner and stands to gain an additional $45 to $66 million for transportation projects over the next 10 years, Glendening said.

The major Prince George's projects to be funded are:

* Reconstruction of the Beltway-Rte. 50 interchange near New Carrollton.

* Expansion of Central Avenue to a six-lane divided highway from I-95 to Campus Way in Largo.

* Expansion of Central Avenue to a four-lane divided highway from Route 202 to Enterprise Road.

* Construction of an overpass between Kenilworth Avenue and Greenbelt Road.

Glendening said the transfer of the funds will accelerate the completion of these projects by about five years. He said the Rte. 50 interchange should be under construction within the next 18 months. He estimated the work at Kenilworth Avenue and Greenbelt Road could be completed within three years and that the expansion of Central Avenue would be finished by next summer.

The money that will be used for these projects was originally earmarked for the construction of a 3.6 mile segment of road between Rte. 32 in Anne Arundel County and Rte. 50/301 in Prince George's.

"It was a project which basically nobody (in Prince George's) wanted," Glendening said of the segment.

Anne Arundel will use its funds to construct a four-lane highway on Rte. 665 from Rte. 2 to Riva Road, make improvements to Rtes. 2, 3 and 32 and replace the bridge over the Severn River on Rte. 50. Anne Arundel will receive a total of $105 million in funds.

Howard County will receive $25 million to construct interchanges at Rtes. 29 and 103 and Rtes. 29 and Broken Land Parkway; make Rte. 216 a four-lane highway from I-95 to Rte. 29 and widen Rte. 175 to four lanes from Snowden River Parkway to Rte. 29.

The other counties that received monies for road improvements were Baltimore, $100 million; Harford, $20 million; and Carroll, $5 million.