Kevin Keegan, 1978 European footballer of the year, has decided not to play for the Washington Diplomats this summer, Dip Coach Gordon Bradley said yesterday.

Keegan, 27, said he changed his mind about his verbal agreement with Bradley, which would have paid him about $1 million for three years, after learning that playing for the Dips would make him ineligible for next year's European Cup competition.

"Thank God I haven't signed a contract with the Diplomats," Keegan was quoted as saying in Germany yesterday. "I have been negotiating with them for three months and now everything has fallen through. The whole thing is very unpleasant."

Keegan, who recently signed a new contract with Hamburg, said he had discovered a clause in European federation rules that stated that only players under contract to their clubs by Aug. 15 would be eligible for the European Cup.

The Dips had planned to have Keegan in uniform from June 10 until the end of the season -- for 20 regular-season games and any playoff contests.

That would mean Keegan would be playing for the Dips on Aug. 15, the cutoff date for eligibility in the European Cup's first round.

The Dips had hoped to team Keegan, a flashy right wing, with mid-fielder Daniel Passarella, captain of the Argentine national team that won the 1978 World Cup, in an effort to make the team competitive with the Cosmos both on the field and at the gate.

The dips were purchased in October by Madison Square Garden, a subsidiary of Gulf and Western Co. Garden President David (Sonny) Werblin said then the company would spend whatever it took to produce a winner. The signing of Keegan was to have been the first tangible proff of that.

The Dips are still negotiating with Passarella and reportedly are interested in Trevor Francis, who scored 25 goals in 19 games for the Detroit Express last season.