A decision that could bring full-scale competition to long-distance phone service while affecting rates for local residential calls was left standing yesterday by the Supreme Court.

The decision approved the special trans-continental long-distance phone service called Execunet that MCI Telecommunications Corp. and two affiliates offer to subscribers in 37 cities. Execunet's long-distance rates are often lower than the telephone company's rates.

Seven of the nine justices declined, without comment, pleas for review filed by the Federal Communications Commission, American Telephone & Telegraph Co., the United States Independent Telephone Association, the National Association of Regulatory Utility Commissioners, six states and the District of Columbia.

Justices Potter Stewart and Lewis F. Powell Jr. said only that they wanted to review the ruling, which the U.S. Court of Appeals for the District of Columbia handed down in July.

The case centers on an FCC decision that MCI turned Execunet into a long-distance phone service like the Bell System's after the FCC had approved only a limited "private line" or business-data communication service.

Reversing the commission, the appellate court said that only by imposing express restrictions -- after finding that the restrictions are required by the public convenience and necessity --authorizes. The transcontinental hookup offered by MCI is within its FCC authorization, the court said.

In a brief in the Supreme Court, the commission said the appeals court was telling it "that it has lost control of its competition policies. MCI, in effect, is telling the FCC that it might have been tricked into opening ordinary long-distance service to competition, even though MCI. . . had solemnly assured the commission and the courts that the only services in question were private line services."

MCI's petition accused the FCC staff of trying to mislead the justices, said it was entitled to provide a new service on previously certified lines without an agency finding that the public interest requires it, and dismissed contentions that it was capable of providing a full-scale long-distance service.

MCI noted that its third-quarter 1977 net income of $876,000 was less than 0.1 per cent of AT&T's.

The Bell System brief argued that the "indefensible" appeals court ruling "will immediately cause administrative and judicial disruption on a grand scale" along with "a massive loss of revenues" that may compel increases in residential and other phone rates.

This theme was emphasized by the utility commissioners' group. In a friend-of-the-court brief, they charged that Execunet lowers phone bills for a "favored few" businesses and other "affluent users," while threatening "economic over-burdening" of the millions of local users.

Similarly, a brief submitted by the public utility commissions of the District, Virginia and West Virginia said the phone companies' long-distance service has provided subsidies that have held rates for residential service substantially below cost.

The three commissions contended that "unwitting proliferation of Execunet-type service will seriously erode state regulatory policies designed to foster affordable basic telephone service." Such a result, they said, would be out of line with the congressional mandate for FCC regulation that promotes, in the language of the communications act, "rapid, efficient, nationwide" phone service "at reasonable charges."

The state of Michigan, in a brief of its own, argued flatly that permitting carriers such as MCI to compete with interstate phone companies "will result in the need for substantial increases in rates for local telephone service."

In the FCC's initial 1969 action, it authorized MCI to build a microwave radio line to offer "specialized" private-line communications between Chicago and St. Louis. In 1971 the commission decided to create a whole new class of carriers such as MCI and to process their applications routinely. MCI began offering Execunet in 1974.

In Los Angeles yesterday, Southern Pacific Communications Co. announced that it will act promptly to offer its own "economical" private-line service nationwide.