The D.C. City Council yesterday approved a bill extending the city's condominium conversion law for five years and allowing elderly residents at converted buildings to continue to rent their apartments for the rest of their lives if their income is less than $40,000 a year.

The bill extending the city's strict condo conversion restrictions also gives developers an automatic right to convert any housing that was vacant on Jan. 1 of this year, in an attempt to get more empty units restored and added to the housing stock.

Real estate interests had opposed extension of the conversion law. Mayor Marion Barry's administration had supported the extension, but objected to the life tenancy provision, preferring instead to guarantee that residents 62 and older have the right to continue to rent their units for the five-year duration of the law.

The City Council must vote on the measure again before passage is final.

In other action, the council gave final approval yesterday to legislation reducing the admissible levels of lead in house paint and requiring landlords to remove lead-based paint on exterior parts of buildings that children can reach.

The measure would apply to public housing units maintained by the city government, but Pauline A. Schneider, the mayor's director of intergovernmental relations, said the bill would have little impact on the city because it already has a program of testing units and redoing them if necessary.

Council members also expressed their disagreement with several budget reprogrammings planned by Barry. But City Council Chairman David A. Clarke noted that the mayor can ignore the council's action by simply not spending the money.

By voice vote the council passed resolutions disapproving:

* A plan to cut $796,200 out of recreation funds, which the council's recreation panel said would lead to reductions in programs for the mentally retarded and physically handicapped, supplies and equipment, and staffing and hours of operation at recreation centers and indoor pools.

* A cut of $150,000 and 15 positions in the Office of the Corporation Counsel, which the judiciary committee said would mean further delays and backlogs in drunk-driving cases, housing code violations and child support cases.

* A reduction of $122,900 from the Commission on the Healing Arts, which licenses and monitors city physicians but has not had the staff to follow up on complaints for some time.

* A cut of $67,900 from the school transit subsidy.

* A reduction of $1 million in job-training programs. Yesterday marked the second time the council has voted to disapprove this transfer of funds.

Council member Charlene Drew Jarvis (D-Ward 4) objected strenuously to the referral of increasingly important industrial revenue bond measures to the finance committee rather than to her committee on housing and economic development, pointing out that the bonds are tools for economic development. But her objection was overruled, 7 to 3, in the one recorded vote of the day.

Council member Nadine P. Winter (D-Ward 6), who oversees the D.C. Lottery Board, meanwhile introduced potentially far-reaching legislation that would abolish the current lottery board and replace it with a new seven-member board to be appointed by the mayor.

In other action, the council approved:

* Modifications to urban renewal plans along 14th Street, Metro Center, Indiana Plaza along the Pennsylvania Avenue Development corridor and the Northeast renewal corridor.

* An increase of the Farmers Market space fee from 20 cents to $1 a day.

* A resolution supporting the transfer of streetlighting costs to District ratepayers, as proposed by the mayor.