The Federal Energy Regulatory Commission yesterday approved more than $400 million in annual natural gas price increases for midwestern states. The increases resulted from the importation of high-priced Algerian liquefied gas.

In adopting the findings of an administrative law judge, the commissioners acknowledged that the Algerian prices, nearly three times current average U.S. prices, are partly distorted and should be reduced. They approved the increase subject to refund.

The commission agreed in principle to put two U.S. pipeline companies and their Algerian partners on notice to reduce the price of gas flowing from their $1.5-billion joint venture by March 31 or face commission action. That action possibly could include revocation of the 1977 import license for the Algerian gas, but such action appeared unliklely due to its potential catastrophic effect on the five-year-old project.

The increases, which go into effect Tuesday, will have greatest impact in Michigan, Indiana, Illinois, Ohio and Missouri on Trunkline Gas Co. and Panhandle Eastern Pipe Line Co. customers.

The average natural gas price nationally now is $2.50 per million heat units. But under the commission's ruling the pipeline companies will be able to "fold in" higher prices from the liquefied Algerian gas. Those prices reached $7.13 per million heat units last fall and now are set at $6.85 per million units. It was not immediately possible to determine the dollar impact of mixing the higher-priced Algerian gas with domestic gas supplied by the pipeline companies.

Yesterday's deliberations, which put the commissioners in an awkward position, reflects the continuing problem of natural gas pricing policies. Many producers and pipeline companies have signed long-term contracts for relatively high-priced gas, but during the current recession and slack market customers have been denied access to large quantities of lower-priced gas coming onto the market from other sources.

The commissioners avoided legal questions of how far their authority extends to force price reductions.