Prospects for the 1988 merger of three Lutheran denominations, already shaded by discontent over the choice of Milwaukee as a headquarters site, were dealt a telling blow last weekend by a series of challenges to the merger plan registered by Lutheran Church in America policy makers.

The 2.9 million-member church's executive committee failed to endorse the plan of merger that was agreed to by a 70-member joint planning commission last February.

Both the 30-member executive committee and the church's bishops were adamant in their rejection of Milwaukee as the headquarters site, the joint commission's compromise of the competing claims of New York, the LCA headquarters, and Minneapolis, home base of the American Lutheran Church.

The 111,000-member Association of Evangelical Lutheran Churches is the third party in the merger.

The LCA Executive Council cited serious and substantive differences in other areas:

*The interrelationship of local congregations, regional synods and the national church.

*The question of which categories of church workers should be considered part of the ordained ministry.

*The ecumenical commitment of the new church.

*Questions relating to the pension fund.

*Questions concerning the use of a quota system in the merged church to ensure representation of ethnic minorities on church decision-making bodies.

The 2.3 million-member ALC gives more emphasis to congregational autonomy, holding that the congregation is the source of authority for the church. In contrast, the LCA stresses the interrelationship of congregation, regional synods and the national church.

While LCA leaders stopped short of characterizing their differences as "demands," several made it clear that the merger plan, as it presently stands, is unacceptable.

"I am convinced that it would be a grave mistake to proceed with the merger" on the basis of the present plan, said theologian Elizabeth Bettenhausen of Boston University.

The Rev. Franklin Fry, a Summit, N.J., pastor and a member of the merger commission, said that while he enthusiastically supported the merger proposal four years ago, "I would not be able to vote that we should accept this document as the basis of a new church. That's as hard a thing as I've said in my life almost."

The Rev. William A. Kinnison of Wittenberg University in Springfield, Ohio, who is chairman of the merger planning commission and a member of the LCA executive board, reacted angrily to the belated objections of his fellow churchmen. "If we destroy the merger now, it will be the end of Lutheran unity for this century or the next . . . . "

"There will be no further discussion of Lutheran unity with us for a long time. We will be regarded as unreliable allies and bargainers," he said.

But the council rejected Kinnison's proposal to proceed with the merger as planned and make adjustments later.

LCA Presiding Bishop James R. Crumley Jr. agreed that "it will be disastrous" if Lutherans fail to find closer ties, but added that it would be "disastrous if the new church is not the strong, confessional church the LCA is today."

It was not clear why the objections of the LCA leaders did not emerge earlier in the unity planning process, which has been under way for nearly five years.

In Minneapolis, Albert Anderson, an ALC member of the planning commission and head of his church's publishing house, expressed surprise at the stance of the LCA leaders "in view of the fact that so many LCA members helped forge the compromises that were reached in the commission's proceedings."

It will be up to the merger planning commission at its meeting in June in Seattle to determine whether the necessary changes can be made in time to keep the merger plan on track.