MILWAUKEE (AP) _ The Common Council voted overwhelmingly Tuesday to approve a $600,000 settlement of a suit filed by the family of a young man who died while in police custody four years ago.

The 12-4 vote sent the proposal to Mayor Henry Maier, who can sign it, veto it, or leave it unsigned and allow it to become law after seven working days. The 12 votes in favor are enough to override a veto.

Ernest R. Lacy, 22, died July 9, 1981, after being stopped for questioning in connection with a rape it was later learned he had not committed.

U.S. Magistrate Robert Bittner, who had monitored talks among lawyers, announced the tentative settlement Monday as jury selection was to have started for the family's U.S. District Court suit alleging policy brutality. A council committee approved it the same day.

No further court approval is needed for the settlement, which would provide $450,000 to Lacy's family and $150,000 to the family's lawyers.

Witnesses said Lacy, who was black, was forced to the ground by members of the all-white police Tactical Squad. His death prompted civil rights demonstrations and accusations of police brutality.

City Attorney Grant Langley said he had decided to settle the case because he was not sure he could show that the city gave proper medical assistance to Lacy.

Langley said he thought the city could have shown that police had acted legally when they stopped Lacy and that they had not used excessive force.

The Lacy family called the settlement a victory and a tribute to blacks and whites coming together to seek justice.

''The struggle is finally over ... and everyone can rest a little more peacefully,'' said Myrtle Lacy, Ernest Lacy's mother.