The D.C. lottery board and a key member of the City Council yesterday worked out a budget compromise that would enable the cash-strapped agency to continue operating through the remainder of the fiscal year, but that would require additional layoffs.

The agreement between lottery officials and City Council member Nadine P. Winter (D-Ward 6) would provide the board--which already has overspent its budget by $110,000--with an additional $1 million in operating funds for the current fiscal year, which ends Sept. 30.

At Winter's urging, the City Council voted on Tuesday to reject a request from Mayor Marion Barry to increase the lottery board's budget by $1.5 million. Winter had argued that the board was inefficient and had a bloated staff.

Yesterday's agreement must be approved by the mayor, submitted by him to the council and approved by the council and Congress.

Betsy Reveal, the mayor's budget director, said she had talked with lottery officials throughout the day's negotiations. "It sounds like a reasonable request and we will give it all favorable consideration when we see it," she said.

Winter met with lottery board members Wednesday night and yesterday morning to work out the compromise. She could not be reached for comment on the agreement, but an aide to Winter said Winter was pleased with the compromise and would support it on the council floor.

Yesterday's agreement provides that in order to hold down spending, a total of 22 of the board's 87-member staff will be laid off by next Friday. The board previously had announced that 17 of those employes would be laid off today, but their dismissals have been delayed one week, according to Willis E. Johnson, deputy director of the lottery board.

"They've got us over a barrel and we've got to sign it," lottery board Chairman Brant Coopersmith told a staff aide before the board formally endorsed the revised budget request.

Lottery officials said privately that the compromise was designed to enable Winter to claim a budget-cutting victory without the board's conceding that its original budget request was out of line.

In addition to the layoff of employes, all of whom serve under open-ended contracts that can be terminated at any time, the board plans to defer spending $100,000 for computer services and will cut back spending for security, equipment and supplies.

"Our controller assures us that somehow or other, we can do this," Coopersmith said.

The compromise apparently has at least temporarily cooled a bitter, months-long feud between the mayor's office and the quasi-independent lottery board over spending and contracts.

Barry, who is trying to gain more control of the board's operations, yesterday disputed reports that he did virtually nothing to protect the original $1.5 million request that Winter helped to delete.

The mayor disclosed that he argued for those additional operating funds during a 1 1/2-hour brunch at Winter's home Sunday afternoon--two days before the council voted to delete the funds. "She was adamant about it," Barry said.

This contradicts a statement made by Winter, a friend and political ally of the mayor, that she had not spoken with the mayor about the lottery budget before the council session.

Also yesterday, the lottery board voted 3 to 2 to reverse a decision made last week to enter into negotiations to extend for two years a contract with Games Production Inc. to operate the city's instant lottery.

At the time of last week's vote, Games Production was the only certified minority firm eligible to bid on the contract, which had been set aside for minority businesses.

However, the Corporation Counsel's office, which waited until after the vote to issue an opinion, concluded that the board was required by law to seek competitive bids and open the contract to all bidders. In the meantime, a second minority firm, Raven Systems, has qualified to bid on the contract.

Lottery officials said they would issue a formal request for bids to the two minority firms as early as next week.

Meanwhile yesterday, D.C. auditor Otis Troupe said his office would soon conduct a "full scale" audit of the lottery board's operations and contracting procedures. He said the audit was prompted by "a variety of reports" of contracting problems within the board. He declined to elaborate.