House and Senate conferences have rejected a proposal to establish a separate office of economic development for the District, one of the top priorities of the Barry administration.

Conferees of the House and Senate District appropriations committee rejected the request to fund the proposed office from the city's budget and said that the city's economic development efforts will "be assumed by the Department of Housing and Community Development, the agency that provided the grant, funding used to staff the office in the past."

The conferees' action virtually assures rejection of the separate office when Congress considers the city's budget in the next few days.

Sources said that as late as last Friday Mayor Marion S. Barry met with Senate and House leaders in a push for the office. But the majority of the conferees felt the office would attempt to make Washington too industralized and that the city should remain a special place for tourists and conventions.

"It's a disappointment," said Knox Banner, the economic development agency's executive director."This will limit what we'll be able to do . . . We're spending a very small amount and we're 10 to 20 years behind other jurisdictions" in economic develop- ment. "That's why we're behind the other jurisdictions."

The economic development agency must now rely on federal grants, a procedure which gave it about $400,000 to work with last year, Banner said. The city had asked for $665,000 in the budget and the retention of the 18-member staff in addition to federal grants, Banner said.

"It was the mayor's second highest priority outside of housing," Banner continued. "Of course we're disappointed. It limits what we can do. We don't have adequate funds for staff or some programs."

Planned projects that will be affected include plans to develop the waterfront and revitalized neighborhood business areas, Banner said.

Banner said he didn't know if he would have to fire any of the staff people. "I took a long time to hire this staff. Everybody is good, very good."

Banner said he won't know for several months how many grants the city will receive.

Just last April Barry appointed economist Ann Kinney to coordinate development of a department of economic development. At that time, Barry noted that he had doubled the size of the city's economic development staff from 8 to 17 and said he would seek to double the funding of the office in his 1980 budget.

Banner said that because of the city's low-budget economic development efforts, it was unable to keep many businesses in the city. The District consequently has been losing about $180 million in payrolls and about 15,000 industrial jobs a year since 1970.