The Environmental Protection Agency announced yesterday that it had decided against the burning of toxic chemicals off Ocean City, Md., shelving for at least a year its controversial test of ocean incineration as a solution to the nation's toxic waste disposal problem.

Lawrence J. Jensen, EPA's assistant administrator for water, said the agency backed off its once-enthusiastic support for ocean incineration partly because of public concerns raised by its tentative approval last December of a test mission in the Atlantic Ocean 155 miles from Ocean City.

The EPA, he said, has now decided to put off "test burns" until it completes regulations addressing such issues as the impact on health of sea-based incinerations, financial reponsibility for them and procedures for choosing an offshore site.

Jensen said that, despite a delay of at least a year to promulgate regulations, he still believed ocean incineration "looks promising" as a method of disposal for some of the 250 million tons of hazardous waste generated in the nation every year.

The immediate effect of the decision was to deny an application by Chemical Waste Management, an Illinois firm, to conduct an experimental incineration in the Atlantic of about 700,000 gallons of heating oil containing large volumes of polychlorinated biphenyls (PCB), a potential human carcinogen.

Chemical Waste Management's plans to transport the toxic debris from an Alabama dump and burn it on a special vessel were angrily opposed by fishermen, resort owners and residents of Maryland, Delaware, New Jersey and Pennsylvania.

"There are vast scientific, legal and policy questions surrounding all stages of ocean incineration," said Beth Millemann, a director of the environmental group Coast Alliance, in hailing yesterday's decision.

William Y. Brown, Chemical Waste Management's director of marine affairs, said his company applied for a test burn permit in May 1985 at the request of EPA. The agency, initially favorable to ocean incineration, had proposed regulations for public comment and asked the firm to test the process at the same time.

Brown said that Chemical Waste Management, the only U.S. firm with incineration vessels, has long argued that promulgation of regulations before research would be more orderly and ultimately would speed up the start of ocean incineration.

"Anyone who promotes delay of ocean incineration is not being rational about what it takes to protect human health and the environment," said Brown.

Chemical Waste Management, which has European contracts for ocean incineration, stores toxic chemicals in large tanks aboard incineration ships. The chemicals are injected into furnaces and burned at 2,400 degrees Fahrenheit. The process results in destruction of 99.9999 percent of the chemicals, Brown said.

The company has performed 10 incinerations in U.S. waters since 1974, he said. The EPA permitted the burning under its current regulations on ocean dumping, but it has no specific regulations for sea-based incineration.

Public hearings on proposed ocean-incineration regulations in Ocean City, Philadelphia, Wilmington and Red Bank, N.J., drew thousands of people who expressed fears of safety and health effects caused by chemical leaks.

Jensen said at a news conference that EPA's decision to redraft regulations reflected the "growing awareness of the public and government officials of the complexities and sensitivities of this hazardous-waste problem."