A state Department of Public Safety panel yesterday ordered Cambridge officials to issue Middlesex County a certificate of occupancy for a jail located in East Cambridge. The order greatly increases chances for the jail's permanent occupancy--a move city officials and resident have been fighting for two years.

County officials expect the jail's final status to be determined sometime this week, when Middlesex County Superior Court Judge Charles R. Alberti reconsiders the case Two weeks ago. Alberti ruled that Middlesex County Sheriff Edward F. Henneberry could not house prisoners there because it is a fire hazard.

Cambridge City Manager Robert W. Healy said that the city would probably accept whatever decision Alberti hands down this week. becuase "further appeals would be an exercise in futility.

Yesterday's state panel decision stated that because of the jail's compliance with all applicable building codes, and because it will be used for its originally intended purpose, Cambridge officials cannot deny it an occupancy permit.

The Cambridge bidding commissioner, calling the facility a danger to public safety because of its lack of a sprinkler system, two weeks ago denied Middlesex Country a permit for the 150-inmate jail, which is located on the 17th though 20th floors of the Middlesex Country Courthouse.

But the state panel stated that "the absence of a sprinkler system does not creat or contribute to the endangering of public safety."

A spokesman of Sheriff Hanneberry said that he was "extremely pleased by the decision" and hopes to get a favorable final ruling as soon as possible.

Middlesex Country Counsel William J. Gustus added that he expect Albert to rule in the country's favor because the issuance of an occupancy parmit significantly changes circumstances since the judge originally heard the case.

However, Peter A. Vellucci, a member of the East Cambridge Citizens Planning Team, which is leading opposition to the jail, said that Alberti's original decison was based on the fact that the absence of a sprinkler system makes the jail a fire hazard. Vellucci says he remains optimistic that Alberti will oppose occupation of the jail as long as there are no plans to install a sprinkler system.

Two weeks ago, after nearby jails became overcrowded. Henneberry began housing overnight prisoners at the jail for the first time since its completion in 1974. Thirty-nine prisoneers are now staying at the jail.