A key state Senate committee broke a 10-day deadlock tonight and passed a measure that would let the giant New York bank Citicorp open 20 branches in Maryland by 1988.

On a 7-to-4 vote, members of the Senate Finance Committee turned aside the objections of their chairman and vice chairman and passed a House of Delegates measure that would carry out Gov. Harry Hughes' agreement to extend further banking privileges to Citicorp, the nation's largest bank holding company.

Under terms of that agreement, Citicorp would open a large credit card service center near Hagerstown in Western Maryland and employ at least 750 people there and 250 others elsewhere in the state. In return, the bank would win an almost-equal footing with Maryland's 89 commercial banks, including the right to open branches around the state.

The "Citicorp bill," which would apply to other out-of-state banks that meet certain requirements, now moves to the full Senate.

In other related action, the finance committee voted unanimously to approve legislation that would establish an indefinite period of regional banking between Maryland and southeastern states beginning later this year.

Debate over the two banking bills lasted three hours, most of that time spent in a sometimes heated discussion of the Citicorp bill.

That legislation has been the object of an intense and costly lobbying war between the Maryland Bankers Association, which opposes it, and a small army of Citicorp employes. In recent days, Hughes also summoned finance committee members to his office to press for the bill's passage. Support on the committee kept shifting back and forth last week, often with one vote seeming to decide the fate of the legislation.

Sen. Thomas P. O'Reilly (D-Prince George's), his voice sometimes rising to a shout, led the charge tonight against the Citicorp legislation. He argued that many of the jobs intended for the depressed Hagerstown area were "illusory," and that competition from Citicorp would "harm Maryland's banking customers."

"Citicorp is the junkyard dog of banking in this country," said O'Reilly, referring to the New York bank's aggressive worldwide marketing efforts. "It's a monster bank."

Later O'Reilly added that Citicorp's offer to build a multimillion-dollar credit card center on the abandoned Fairchild Industries plant north of Hagerstown "is not the reason to change the banking laws of this state."

"Citicorp is here for one reason: to draw deposits from Maryland banks," O'Reilly said.

But Sen. Thomas L. Bromwell, a Baltimore County Democrat, voted for the measure, saying, "Because you're big doesn't mean you're bad. You don't become a $143 billion company by ripping off your customers. I'm tired of Maryland losing jobs."

Sen. Howard F. Denis (R-Montgomery) also supported the Citicorp bill. He said that even if the giant bank makes inroads into the market now jealously guarded by Maryland banks, "there's enough to go around. Small- and medium-sized banks can keep their niche in the marketplace."

Committee Chairman Dennis F. Rasmussen, a Democrat whose district in eastern Baltimore County includes pockets of 11 percent unemployment, said he empathized with Western Maryland's desire for hundreds of new jobs.

But, he added, allowing Citicorp to begin opening branches in the state after July 1986 would violate what should be a "cautious and orderly approach" to the kind of interstate banking that industry experts believe is inevitable.

Citicorp lobbyist Franklin Goldstein said the committee vote satisfied the banking conglomerate's wish to "compete for customers on a level playing field with Maryland banks."

Because the definition of bank "branches" under Maryland law does not include automated teller machines, Citicorp would be free to open an unlimited number of those popular devices starting next year, Goldstein said.