Girl badly upset in quarrel (7)
I believe the answer is:
dispute
'quarrel' is the definition.
('dispute' can be a synonym of 'quarrel')
'girl badly upset in' is the wordplay.
'girl' becomes 'di' (**).
'badly' indicates an anagram.
'in' indicates putting letters inside.
'upset' is an anagram of 'spute'.
'di' placed into 'spute' is 'DISPUTE'.
(Other definitions for dispute that I've seen before include "conflict" , "Altercation" , "Argue about (something)" , "Quarrel over rights" , "Disagree or challenge" .)