Nancy L. Kantarian, who killed her two young daughters two years ago in what her defense attorneys described as a psychotic frenzy, was ordered released yesterday from mental hospitals where she has been undergoing treatment.

"Even though we are taking some chance at this time, I think we should release her from this condition of her probation," Fairfax Circuit Court Chief Judge Barnard F. Jennings said at the conclusion of the 30-minute hearing.

Kantarian, sobbing with relief, embraced her husband, Harry K. Kantarian, outside the courtroom after Jennings' decision.

Kantarian, the 32-year-old daughter of a wealthy Rochester, N.Y., family, pleaded guilty to two counts of voluntary manslaughter in the May 23, 1984, deaths of her children, Talia, 6, and Jamie Lee, 5. Talia was stabbed 32 times, and Jamie died from a blow to the head and from burns suffered after Kantarian set fire to the family's $400,000 Great Falls house.

Kantarian avoided a prison sentence under a plea agreement with county prosecutors and was sentenced to an indefinite stay in a private mental hospital.

Following her sentencing hearing 20 months ago, Kantarian's attorneys said that it could be years before she would be well enough to be released.

Fairfax County Commonwealth's Attorney Robert F. Horan Jr. did not contest recommendations from Kantarian's attorneys yesterday that she be released from the hospital.

Kantarian's lawyers argued that her mental condition has improved sufficiently through psychiatric treatment that further confinement would be counterproductive to her recovery.

Their recommendation was supported by reports from seven medical experts.

"It's kind of hard to argue [against] this unanimity of opinion," Horan said. "My only concern is that nobody seems to know why she did what she did in the first place . . . . It's unusual, to say the least."

Dr. David Waltos, a psychiatrist who has been counseling Kantarian four times a week for more than a year, testified yesterday that while Kantarian still has mental disorders, she no longer displays the most extreme symptoms, such as disorganized thinking and irrational responses to stress, that she showed before she began treatment.

"She is able to process information more effectively," Waltos said. "I don't see the impulsivity."

Last December, Jennings rejected a motion similar to the one her attorneys recommended yesterday after Horan argued that the same doctors who testified about the severity of Kantarian's illness before her sentencing had not returned to testify since.

Kantarian has been undergoing treatment at the Shepard and Enoch Pratt Hospital in Towson, Md. Under recent court agreements, she had been allowed to leave the facility three days a week to work at a clothing boutique in Baltimore. She also had been released on weekends.

Harry Kantarian, a senior partner at the Washington law firm of Housely Goldberg & Kantarian, was on a business trip at the time of his daughters' deaths. Nancy Kantarian's father is John E. Heselden, an executive at Gannett Co., the Arlington-based media conglomerate that publishes USA Today.