The District of Columbia Public Service Commission approved a record-high telephone rate increase yesterday, giving Chesapeake & Potomac Telephone Co. permission to boost its rates by $40.3 million, or 19.6 percent, for almost all District residents.

The increase, expected to take effect before the end of the month, was granted unanimously by the three-member commission as it approved a highly unusual settlement between C&P and the District of Columbia People's Counsel, which initially had opposed any current telephone rate increase.

Under the terms of the agreement, nearly 98 percent of basic monthly residential service would be affected. For D.C. customers with unlimited calls throughout the Washington metropolitian area, rates would jump from $8.18 to $9.77. Depending on the type of service, business rates would rise between $1.74 and $2.54 a month.

Rates for pay phone calls (now 15 cents), directory assistance and basic economy service (under which customers pay $2.16 a month plus 6 cents for any phone call they make) would remain the same--even though C&P had sought increases for these services, too.

The rate increase for District telephone users is only one of several large increases C&P has been granted in the four area jurisdictions in which it operates. The Maryland Public Service Commission approved a $95 million rate increase last month, boosting rates by between 13 and 15 percent.

Last fall, C&P won permission to impose a 10 percent surcharge on Virginia phone bills, and a 28 percent rate request is pending in West Virginia.

In the District, C&P initially sought a $132 million increase, but agreed to accept a $40.3 million boost if it could begin charging new rates almost immediately, without having to undergo the traditional lengthy rate hearings.

"It may be one-third of what we wanted, but we could get it immediately, as opposed to possibly getting the same amount--or even more--in September," said Delano E. Lewis, a C&P assistant vice president, after the commission meeting.

Also under the agreement with the people's counsel, C&P agreed to impose the new rates on a surcharge basis--increasing bills across the board by 19.6 percent--instead of restructuring its rates as it had proposed originally. The effect is to place a greater burden on residential customers, increasing their rates by as much as 70 percent, while business rates would be increased by 28 percent.

According to the agreement, any restructuring of rates will be considered in a separate hearing that begins this week. Among other things, this hearing will focus on C&P's proposal to change the way the cost of a local phone call is calculated to consider the length of the call, the distance it must travel over telephone lines and the time of day it is made. Currently, a customer with limited service is charged a flat rate per call--no matter how far the call must travel in the metropolitan area.

Such restructuring could lead to a rate increase of between 200 and 500 percent, contended People's Counsel Brian Lederer. As a result, he said, it was much more important for the commission to focus on the restructuring instead of the rate increase

General Services Administration trial attorney Sumner Katz said his agency"didn't like the settlement procedure--cutting short the litigation process . . . and having parties going to back rooms to come up with some sort of figure" for the increase.