Residents of this politically savvy town, equally at home with happy ethnic parades and headbusting protest marches, were bewildered or angered during their lunch hour today. A half-mile-long line of federal workers from all over the country blocked traffic and closed down streets as they marched in a symbolic "funeral" for their once-happy relationship with their boss, Jimmy Carter.

More than 2,000 delegates and guests of the American Federation of Government Employees followed a coffin - borne by six mourners in black - from the Conrad Hilton Hotel to the supermodern Federal Center. The purpose of the exercise was to get maximum media exposure for the new stance of this union. Once solidly in the pocket of any Democratic occupant of the White House, the giant AFL-CIO union this week has broken with President Carter on civil service reform, pay and the failure of the president to deliver on important issues to the union's 260,000 members.

The protest march was a symbolic funeral for the President's promise to equalize pay between government and industry, a promise union leaders and members unanimously agreed was broken when Carter said he would hold this October's pay raise to 5.5 percent. Yesterday the union denounced Carter and withdrew its badly needed support for his civil service reform plan. It said it would fight the president tooth and nail until he agrees to a full catch-up pay raise with industry, the repeal of the Hatch "no politics" Act, and puts his signature on a still forming labor management bill.

Last evening, delegates gave a standing ovation to Rep. Bill Clay (D-Miss.) when he told them that federal workers must get tough and take to the streets if necessary, because they have become "the new niggers of America."

Since it seems obvious Carter will not retreat from the 5.5 percent pay figure, the big union and the White House are now eyeball to eyeball. The raise it wants would run around 9 percent, nearly double the $2.7 billion price tag of the amount Carter has set.

The battle between Carter and the union - which represents between 600,000 and 700,000 federal workers at the bargaining table - is also a struggle between the union leadership and militant challengers. The militants view their union president's cooperation with the White House on civil service reform as a sellout. Only executive vice president Joseph D. Gleason, thanks to some adroit political maneuvering, has escaped the backstabbing here. Gleason was reelected without opposition. Other officers will be picked Wednesday in a secret ballot election.

Candidates for the top office include incumbent president Kenneth T. Blaylock. He is fighting for his political life against a strong challenge from Royal Sims, the union's top black official and vice president from Philadelphia. Other challengers are Allen H. Kaplan, vice president for the Chicago region, and Tom Leavitt, a former union staffer who is given little chance of surviving the first round of voting. Russell Binson, head of the labor department local in Washington, is running for secretary-treasurer on the Kaplan tickket. Mildred Mosley, a well-known union leader at the Pentagon nominated Sims, who is rated as the man to beat.

Union insiders believe that incumbent secretary-treasurer Nicholas Nolan of Baltimore, considered the best politician in the race, will lead the vote-getting in his bid for reelection, beating Binion, William Nussbaum of New Jersey, Lila M. Bell of California and Jim Bennett of Kentucky. Delegates here represent approximately 200,000 member votes; the Washington area has 16,000 votes and Baltimore about 5,800.

Mystery March: The nearly two hour "funeral" march through downtown Chicago seemed a mystery to passersby and motorists who were held up by the procession. Slogans such as "Amy, your dady is a liar" and "5.5 is no jive" meant nothing to the lunchtime crowd except at the fed center itself, a bureaucratese-speaking island in this commercial city.

The comments of parade viewers tions federal citizens in terms of pay, working conditions and political freedom. When the "coffin," which was symbolically carrying the president's broken promises, passed a group of onlookers, one man commented, "It must be something for the pope." Jim Mattews, a Chicago underwriter, finally figured it out. He summed up what many angry private industry types apparently felt about the rally when he said of the federal workers, "I hope they do get equal rights. Then they'll all take a pay cut."