The D.C. government yesterday asked the Joint Committee on Landmarks for permission to demolish the ornate Tivoli Theater at 14th Street and Park Road NW to clear the way for a long-promised retail shopping area.

The step is the latest in the ongoing battle over the fate of the 62-year-old Tivoli, a dispute has divided the upper 14th Street neighborhood.

Historic preservationists argue that the theater, one of the city's last two great movie palaces, is worthy of salvation. Other residents argue that it is a relic of a segregated era that is standing in the way of needed community services.

The joint committee was asked last year by Save Tivoli Inc., a citizens group, to designate the theater an historic landmark. The city's demolition application now forces the landmarks committee to make that decision within 90 days.

If the committee grants the designation, Washington's state historic preservation officer must make the final decision on whether to allow demolition to proceed.

James E. Clay, the city's housing department director, now holds that title, but it will be transferred to Carol Thompson, director of the city's new department of Consumer and Regulatory Affairs, on March 31.

Clay said yesterday that the housing department has asked for permission to raze the Mediterranean Renaissance style theater because a group of developers who were designated to rebuild the Tivoli's block nearly three years ago "have indicated to us that they are ready to proceed."

The group's plans call for demolishing the theater.

The historic preservation officer can allow the Tivoli's demolition if there is a finding that the developers will suffer a hardship if their project is blocked or a finding that the new project has "special merit."

A spokesman for the development team said it is not possible to describe exactly what kind of retail area will be built on the site, because the project is still in early planning stages. "It's too indefinite and no determinations have been made," the spokesman said.

Developer Oliver T. Carr was allowed to tear down the old RKO Keith's theater on 15th Street NW, which had been designated a landmark, because the former historic preservation officer ruled that Carr's new development, Metropolitan Square, was a project of special merit.

Carr later agreed to retain the historic facades of the theater and an adjacent building.

Upper 14th Street was declared an urban renewal area following the extensive damage caused there during the 1968 riots and, and the city's Redevelopment Land Agency bought up the Tivoli site and several others for redevelopment projects.

A group of developers including Dart Drug president Herbert H. Haft Jr., real estate dealer Gerald Lustine, businessman Arthur McZier and the Temple Church of God in Christ on Park Road won the redevelopment rights to Tivoli parcel and four nearby city-owned sites in 1980.

Redevelopment work began to proceed last December, when the developers received from the federal government the financing to build 150 subsidized housing units on a site across 14th Street from the Tivoli.