Mayor Walter E. Washington asked the D.C. City Council yesterday to approve creation of a small-bus system in several neighborhoods to carry residents to and from Metro subway stations and other community centers.

The first step, the purchase of about 25 buses, would cost an estimated $800,000.Under the mayor's plan, announced at a news conference, the D.C. government would set aside $35 million in federal highway funds for a possible citywide expansion of the system.

If approved, the new small-bus system would resemble Montgomery County's successful Ride-On system, which carries thousands of passengers each day to and from downtown Silver Spring and the nearby Metrorail Red line terminal. The fare is 25 cents. Many Ride-On bus routes replaced former Metrobus routes.

While no detailed plans have been made, the mayor said the small-bus routes may serve such areas as Anacostia, the far Northeast, Brookland and Fort Totten.

The mayor's proposal for a small-bus system was contained in the city's latest plan for transferring funds from abandoned interstate highway projects to other city transportation projects, mainly Metro.

For the city's old, much criticized interstate highway program, the mayor's request represents a watershed. It would erase from the maps the last free-ways that would cause the displacement of families and businesses.

The highways eliminated are the north leg of the Inner Loop Freeway, which would have paralleled New York Avenue eastward from Third Street NW, and the northeast leg of the Inner Loop, from New York Avenue NE past the National Arboretum to the Robert F. Kennedy Stadium.

Yesterday's proposal calls for transferring $465.6 million from the highways. After City Council action, the request requires approval by the U.S. Department of Transportation and an appropriation by Congress.

Of the transferred money, $168 million would be used to help complete three Metrorail routes, bringing the operating system to 60 miles. Another $238 million would be used to help build seven more miles on three other Metrorail routes.

The remaining 33 miles of the proposed 100-mile rail system are being restudied, at federal insistence, to see if alternative forms of transportation would be cheaper and perhaps more suitable.

Additional local contributions from the District of Columbia and from both the Maryland and Virginia suburbs are needed to complete Metro's financial program.

The proposed fund transfer to Metrorail was no surprise. It would, in fact, have been a surprise if the mayor had not requested it.The mayor new initiative is the proposed small-bus system.

It represents a shift from traditional to innovative solutions to the city's transportation needs, using small buses on neighborhood streets where large buses could not fit or would distrupt the community. most Metrobus routes radiate from downtown, and do not cover side streets.

Some environmentalists and residents of various neighborhoods have urged a shift to small buses. At a Metro public hearing before the Blue Line subway opened to Virginia last year, a resident of Foggy Bottom said small-bus feeders were a priority item.

Despite an official promise by Metro officials to explore the idea, it has not been heard of since. Douglas N. Schneider Jr., D.C. transportation director, said the city's small-bus proposals is intended in part to force that issue with Metro.

In one respect, the D.C. small-bus system may depart from the pattern set in Montgomery County.

Montgomery bought its small buses with local funds, escaping the effect of a federal law that would have required all drivers and mechanics to be paid at Metrobus wage scales. The county's pay scale is lower and the county, unlike Metro, can hire-part-time workers.

The D.C. small-bus system's use of federally financed funds apparently would require the higher Metro wage scale. However, the mayor said the main purpose of the city plan is not to costs, but to give better community service.

In fact, the mayor said, the city will discuss the possibility of Metro actually operating the small-bus system, using unionized workers.