Luskin's Inc., one of the Washington area's largest discount appliance chains, yesterday ended a four-year battle with the Maryland Attorney General's office by agreeing to pay $290,000 in a settlement that also calls for sweeping changes in the chain's advertising and sales practices.

An agreement, or consent decree, approved by the Maryland Circuit Court for Howard County, requires Luskin's to pay $40,000 to defray costs incurred by the the attorney general's Consumer Protection Division while investigating the retailer and $250,000 to be used to set up a Consumer Protection Education Fund within the division.

The decree stemmed from charges that Luskin's violated the Maryland Consumer Protection Act and the state's False Advertising Act by attracting customers to its stores with advertisements of name-brand products that were not available for sale. Customers were then pressured by Luskin's salesmen to buy something else instead, according to the state's charges.

The Maryland Attorney General's office had also accused Luskin's of failing to repair defective products and of, without consumers' knowledge, selling "new" items that had been damaged and repaired before the time of sale.

Luskin's, a longtime family controlled concern that became a publicly held company last May, has 18 stores in Maryland, two in Washington and six in Virginia. The chain also operates nine stores in the Cleveland-Akron area in Ohio and is opening four new stores in Hartford, Conn., this month.

Luskin's officials steadfastly have denied the charges, the first of which were brought against the company on Dec. 16, 1981.

Arnold M. Weiner, Luskin's lawyer, reiterated his client's denial of those charges yesterday and said that Luskin's agreed to the consent decree "only after the attorney general gave up the notion that we had engaged in some wrongdoing."

The case revolved around a "technical dispute" over Luskin's advertising and sales practices, Weiner said.

"Luskin's is proud of its name. Luskin's customers, by and large, have trusted and continue to trust Luskin's," said Weiner, who added that the state "tried to make a case" out of 1,300 Maryland complaints brought against Luskin's between 1970 and 1985.

The complaints, most of which already have been settled, amounted to less than one-tenth of 1 percent of the 15 million transactions that Luskin's had with Maryland customers in the past 15 years, Weiner said.

Luskin's may be liable for additional costs related to the arbitration of those unsettled consumer claims. But the company does believe the potential liability is great enough to warrant setting aside funds to handle those claims, according to Weiner.

Maryland Assistant Attorney General William Leibovici, who prosecuted the case, said, "the settlement speaks for itself."

"Our objectives from the outset were to settle past disputes and to provide information for consumers in the future," Leibovici said. "We've achieved all of our objectives."

The highlights of the Maryland agreement are these:

*Luskin's will adopt more stringent advertising policies. Chief among them, the company will maintain adequate stocks of products advertised in the local media.

*Luskin's will guarantee the exchange defective merchandise or the refund of the purchase price if the defect is not repaired within 45 days of purchase.

*Outstanding consumer complaints -- those covered by the December 1981 attorney general's action, but still unsettled -- will be submitted to binding arbitration by the consumer protection division. Future complaints also will be forwarded to the division for arbitration.

*The $250,000 Consumer Education Fund will be used, in part, to produce "educational materials" -- print, audio and video -- to inform Maryland consumers about sales practices, warranty and repair rights, and traditional methods of resolving consumer disputes.

*Maryland citizens buying in Luskin's Maryland stores are covered fully by the agreement, as are non-Maryland residents patronizing Luskin's stores within the state.

*Maryland citizens buying in Luskin's stores outside of the state are covered by the repair-refund provisions of the agreement. Non-Maryland residents buying in Luskin's stores outside of the state are not covered by any portion of the agreement.

Luskin's has been investigated in the District of Columbia and Northern Virginia for alleged "bait-and-switch" practices and alleged bad-faith dealings with customers on product repairs.