MILWAUKEE (AP) _ Allis-Chalmers Corp. announced Wednesday an agreement to sell its pump business to International Telephone and Telegraph Corp. for $71 million in cash.

Allis-Chalmers, a once-giant farm equipment manufacturer, filed for Chapter 11 under the federal bankruptcy code last year.

''The agreement, which contemplates completion of the sale during the fourth quarter of 1988, is the final agreement necessary to complete our reorganization plan strategy for the sale or merger of our principal businesses as going concerns,'' said Wendell F. Bueche, chairman and chief executive officer of Allis-Chalmers.

The purchase price of the pump business is subject to review by parties in the Chapter 11 proceedings and approvals by the Allis-Chalmers and ITT boards of directors.

The business is operated by Cincinnati-based Allis-Chalmers Pump Inc., a wholly-owned subsidiary of Allis-Chalmers Corp. There are about 315 employees in Cincinnati and Milwaukee and another 150 in Canada.

The primary manufacturing facilities are in Cincinnati and Guelph, Ontario, with other plants located in Brampton, Sudbury and Elliott Lake, Ontario.

ITT said its new acquisition will be incorporated in its current form into ITT Fluid Technology Corp., producer of a broad range of fluid handling and control products. ITT Corp., a diversified conglomerate, makes and sells a range of products, including automotive, defense and space equipment.