D.C. Mayor Marion Barry formally asked the City Council yesterday to approve a $1 million increase in operating funds for the D.C. lottery board, apparently defusing a financial emergency that threatened the board's continued operation.

Barry also suggested that to save money, the board should consider operating the city's instant lottery games itself rather than continuing to contract with a private firm.

The increase in operating funds is part of a compromise worked out among Barry, lottery board members and City Council member Nadine P. Winter (D-Ward 6), who has oversight authority for the lottery board. On Tuesday, the council at Winter's urging rejected Barry's original request for $1.5 million in additional funds for the board.

The board, which began the year with a budget of $1 million, is planning to lay off 22 temporary employes next week and to cut back on computer services, security and other costs in order to make it through the fiscal year that ends Sept. 30.

In a letter to the council, Barry said that failure to approve the compromise would "unnecessarily jeopardize" revenue from gambling this fiscal year.

" The revenues generated by the lottery are critical if we are to balance our budget, avoid major tax increases and ensure the retention of our permanent fulltime workforce . . . ," Barry wrote.

The lettter from Barry, who for several months has feuded with the board in an effort to gain more control over its contracting authority, continued his criticism of the board.

"I am by no means satifisfied with the present operation and management of the board. I am convinced that my concerns . . . have merit and require my personal attention," Barry wrote.

Council Chairman David A. Clarke said yesterday that he will schedule a vote on the supplemental budget for June 21. If approved, the measure then must be signed by the mayor and approved by Congress.

Clarke rejected a request from council members Betty Ann Kane (D-At large) and H.R. Crawford (D-Ward 7) for a special session next week to act on the lottery board request. Kane and Crawford said the quick action was needed to protect the "fiscal integrity" of the board.