The California Department of Motor Vehicles is seeking to stop Chrysler Corp. from doing business in California for 10 days as punishment for allegedly selling used "lemons" to unsuspecting buyers.

However, a less-harsh settlement--possibly a fine or payments to alleged victims--is more likely. Chrysler says it did not violate any laws.

The DMV proposed the stiff penalty during a nine-day administrative hearing that ended Friday.

The proposed penalty against Chrysler would not necessarily prevent dealers from selling cars, said Bernard Lu, DMV's lead counsel, but it would probably prevent Chrysler from shipping cars into and within the state for the 10-day period, an expensive and confusing scenario. The auto maker could also be prevented from advertising, shipping parts or providing financing within the state. According to R.L. Polk, a market research firm, about 120,000 new Chrysler cars and trucks were registered in California in 1994.

Lu said Friday that despite its recommendation, the agency would prefer to reach a settlement with Chrysler in which owners of the used "lemons" would be compensated.

"The department prefers to help the consumer rather than to punish Chrysler," Lu said.

During the hearing in Sacramento, Chrysler denied the allegations against it, saying it provided paperwork to used-car dealers about the vehicles but that some dealers did not give that paperwork to consumers.

As previously reported, the DMV in August charged Chrysler with selling 118 used "lemons" without telling buyers that the cars had been repurchased from customers because of defects. The cars included Dodges, Jeeps, Chryslers and Plymouths sold through Northern California dealerships. The model years are 1989 to 1992.

The DMV says Chrysler violated regulations requiring it to label the cars as "warranty returned" on title documents. The DMV also says the notices that Chrysler provided for used-car dealers to give to buyers were improperly worded.

The administrative hearing went forward when settlement attempts failed. According to a source familiar with the discussions, the DMV was seeking about $1 million from Chrysler, including penalties and costs. Neither the agency nor the auto maker would comment on that figure.

On Friday, a Chrysler spokesman said: "Our position is that we are in full compliance. Chrysler is not willing to pay, in effect, damages when none have been experienced."