The fire that swept through Kann's department store on March 31 was of suspicious origin and may have been started by someone inside the abandoned building, D.C. fire marshal Carmel L. Del Balzo has concluded.

In a report dated April 25 and released yesterday at a Senate hearing, Del Balzo said an investigation showed that "the possibility of an accidental cause of fire is excluded."

However, the report added, "no physical evidence was detected to establish the fire was of incendiary origin."

Del Balzo told a reporter the fire, which began on the structure's fourth floor, could have been started either by a vagrant or someone acting maliciously.He said the fire still is being investigated by a joint arson squad of police and fire department personnel.

It took about 150 firemen and 50 pieces of equipment about 12 hours to bring the fire under control. Kann's went out of business in 1975 after 82 years.

The Fire Marshal's report was given to the Senate D.C. Appropriations Subcommittee by Fire Chief Jefferson W. Lewis, who was questioned about the blaze by Sen. Patrick J. Leahy (Dvt.). Leahy said he was distressed that the building burned when consideration was being given to saving its historic facades.

Lewis said the Pennsylvania Avenue Development Corp., the federal agency that owned the building and planned to demolish it, had not followed a fire department recommendation to repair and activate an inoperative sprinkler system.

Lewis said through a spokesman later that he did not blame the redevelopment corporation for the blaze.

W. Anderson Barnes, the corporation's executive director, said reasonable precautions had been taken to protect the building. He said it would have been a waste of taxpayers' money to invest between $50,000 and $100,000 to replace a deteriorated sprinkler system in a building doomed by approved redevelopment plans. CAPTION: Picture, SEN. PATRICK J. LEAHY . . . distressed building burned