The Justice Department yesterday approved a set of minimum standards for institutions for the mentally retarded as it signed an agreement requiring Maryland to correct conditions at Rosewood Center near Baltimore.

Rosewood, the state's oldest and largest institution for the mentally retarded, was the first of 10 such facilities investigated by the department under the Civil Rights of Institutionalized Persons Act of 1980.

The agreement resolves a civil suit filed by the department in U.S. District Court in Baltimore. It requires Maryland to correct alleged violations of the constitutional rights of its 900 residents and establishes physician-to-patient ratios, attendant-to-patient ratios and the types of treatment necessary.

"This represents a significant accomplishment to improve the care and treatment of mentally retarded citizens at Rosewood," said Assistant Attorney General William Bradford Reynolds, head of the department's civil rights division. "This exemplifies federal-state relations at their best."

Elmer Cerano, executive director of the Association for Retarded Citizens of Maryland, called the agreement a "good beginning" but said there should be a "subsequent plan to phase out the institution and provide alternatives like group homes, family-support and apartment programs."

Lou Panos, a spokesman for Maryland Gov. Harry R. Hughes, said Hughes has requested $37.2 million in his latest budget for the Rosewood Center, an increase of $7.3 million over the 1984 appropriation.

In response to a question, Panos said improvement in conditions at Rosewood has gone slowly because "funding is always difficult for programs like this, which is why this [state] administration has tried to zero in on deinstitutionalization" -- in which persons are allowed to leave an institution under some circumstances.

In a 1982 letter to Hughes, Reynolds described some of the conditions at the center: hundreds of residents needing vocational training were sitting idle for hours; some residents had lost skills; residents had to ask staff members for toilet paper; lack of heat forced residents to sleep in their overcoats; six residents were raped by an intruder.

The agreement includes provisions to improve the ratios of patients to physicians, psychiatrists and attendants; to require that residents be protected from other residents who may injure them, and to prevent attendants from administering behavior-management drugs for the convenience of the staff or as a substitute for training programs.

The Justice Department's first suit against the center, filed in 1974, was dismissed on the ground that the department lacked authority to bring such action. Four years later, Congress passed the Civil Rights of Institutionalized Persons Act that gave the attorney general authority to file suits to correct unconstitutional conditions in state and local institutions.

The ratios established under the agreement were recommended by experts hired by the Justice Department.