Frances Cox, the 57-year-old former treasurer of Fairfax City who was convicted last September of misappropriating public funds, will continue to receive her $33,264-a-year city pension.

Although city officials said yesterday they were "offended" by the notion, a seven-member committee decided unanimously that it could not deny Cox the pension she has been receiving since January 1982.

"Nothing in this decision should be construed as passive acceptance of the circumstances leading to Mrs. Cox's conviction," said a statement released after the meeting. "This committee believes most strongly that as a moral proposition, Mrs. Cox is not entitled to any further compensation . . . . The city employees who constitute the bulk of this committee are particularly offended by the notion that any City officer . . . who abuses the public trust could continue to benefit from city funding."

Members of the committee, chaired by City Manager Edward A. Wyatt and including five other employes and council member Allen C. Griffith, agreed not to comment on the two-page statement.

Although a city ordinance allows the committee to deny pensions in cases of "proven dishonesty or . . . conviction of a criminal act," the employe must have lost his or her job because of that dishonesty or criminal act, the law says.

"I would like to be gracious about it," Cox said of the committee's decision. "And please say that I continue to maintain my innocence."

Cox spent 101 days in jail this winter, and was released from the remainder of her 180-day sentence for good behavior. She must complete 300 hours of community service.

Cox lost her job because she failed to win reelection in 1981 after 29 years as a city employe. It was not until months after she left Fairfax City Hall that officials uncovered what prosecutors said in court were the large-scale diversions of city money during her tenure as treasurer.

"Under the plain terms of the ordinance," the committee said, "Mrs. Cox's termination . . . was not due to her proven dishonesty or her subsequent conviction for embezzlement of City funds."

Cox was first convicted of embezzlement in 1982, in a trial in which the prosecutor said she had stolen "a minimum" of $200,000, but that conviction was overturned on appeal. Last September Cox pleaded no contest to a lesser charge, as part of a plea bargaining agreement that saved the city a costly retrial.

Yesterday's decision drew outrage from some quarters in the city, in which the iron-willed and politically savvy Cox was a major political figure for several decades.

"I can't imagine why they couldn't find some way to handle it better than they did," said former mayor Frederick Silverthorne, who was mayor when Cox was indicted. "I don't think she should get a pension. As a taxpayer, I object to my taxes going into her hands."

Several council members contacted yesterday said they had no intention of overturning a decision made by a committee of those who contribute to the pension fund, and said they hoped that yesterday's action is the end of what has been an embarrassing incident.

"I hope we can move on to other things now," said council member Glenn L. White.