Officials from the Hughes administration and Chase Manhattan Corp. asked a skeptical General Assembly today to approve a complex proposal that would allow the giant bank to acquire a debt-ridden Baltimore savings and loan association in exchange for $25 million from the state and broad new banking powers in Maryland.

But some legislators, considering the proposal that would relieve the state of a potential $80 million loss at the Merritt Commercial Savings and Loan Association and free up accounts for 70,000 depositors at Merritt and two other thrifts, balked at provisions that they suggested favor Merritt owner Gerald S. Klein.

"My immediate reaction is one of outrage," said state Sen. Thomas V. Mike Miller Jr. (D-Prince George's). "We are dealing with this guy Klein like he is a bona fide banker. I would be happier if he was behind bars."

The state has all but signed the agreement on the Merritt sale, and administration officials confirmed for the first time today that the state is prepared to assign to Chase its right to sue Klein for civil damages for any possible wrongdoing at the thrift. In addition, Chase would retain the Merritt owner to help work out some of the thrift's complex real estate deals.

Klein, an aggressive entrepreneur who bought Merritt in 1982 and expanded its assets more than fivefold by May, invested millions of dollars of the thrift's funds in companies in which he had an interest. Merritt voluntarily went into state conservatorship in May, after the state put another Baltimore thrift into conservatorship following allegations of mismanagement and insider loans.

Today's briefings on legislation that the assembly will probably vote on within two weeks underscored the political quandary facing many Maryland officeholders as they try to balance the interests of thousands of depositors still inconvenienced by the crisis against the interests of taxpayers reluctant to pay for a bailout.

Top officials of the Hughes administration, who have labored since May to extricate the state from the thrift crisis, told the legislature today that the proposal from Chase is the quickest and cheapest way to free up $500 million in deposits, a view that is likely to prevail when the legislature votes.

"Our intention from the very first day we fell into this cesspool . . . was to free up deposits and limit the liability of the state," said Thomas H. Maddux, Gov. Harry Hughes' secretary of economic and community development. "We have no alternative at the moment. We are cutting and running for a reasonable price."

The legislation proposed by the Hughes administration would allow Chase to purchase Merritt and two other thrifts -- Chesapeake Savings and Loan of Annapolis and Friendship Savings and Loan of Bethesda -- and merge them into a commercial banking operation. The legislation would permit Chase, and possibly other out-of-state banks, to establish an early foothold in Maryland in competition with existing banks.

Another potential beneficiary of the special session could be Citicorp, the giant New York bank holding company that is negotiating to acquire First Maryland Savings and Loan of Silver Spring. Sources familiar with those negotiations say the talks have been hampered by differences between Citicorp and First Maryland's president over the value of the thrift's assets.

Some legislators said today they will be reluctant to approve the Merritt sale until the Hughes administration unveils a promised plan to free up accounts for depositors with hardships at two thrifts under state conservatorship, Old Court Savings and Loan of Baltimore and Community Savings & Loan of Bethesda.

"Right now the hardship plan is thin to the point of anorexia," said state Sen. Howard Denis (R-Montgomery). "If there is no plan, no other legislation is going to pass at the special session."

The legislature has already demanded additional detail on Chase's agreements with Klein. A Chase vice president today outlined several investments Klein would retain, which Chase estimates are worth millions of dollars less than what Klein owes on them.

"The arrangement with Klein is designed so he doesn't get off the hook," said Chase's Stanley Burns. "Before he gets any benefits, all his loans to Merritt have to be repaid."

At a meeting of the Senate leadership this morning, there was considerable grumbling that Hughes has not appeared publicly to explain and defend his proposal.