A divided City Council approved a measure yesterday eliminating the requirement that all District motorists carry no-fault car insurance.

By a vote of 8 to 5, the council amended its 2-year-old insurance coverage law by making no-fault coverage, which allows motorists to be compensated by their own insurance companies regardless of who is at fault in an accident, optional instead of mandatory.

Yesterday's vote came on first reading of the legislation. The council must take another vote on the measure in two weeks.

In addition to making no-fault optional, the changes approved yesterday would eliminate the current restriction against suing for nonmedical pain and suffering unless an accident victim incurs at least $5,000 in medical bills or suffers disfigurement, disability or death.

Insurance would remain mandatory for all motorists, and the new proposal would increase the fines for persons driving without insurance from a maximum of $500 per offense to $500 for the first offense and $1,000 for each subsequent violation.

Insurance industry representatives said the changes will result in higher premiums for consumers.

"It is the worst thing that the council could have done," said Grover Czech, regional vice president of the American Insurance Association. "This kills no-fault. It kills it deader than a doornail."

But representatives for D.C. trial lawyers, who were the chief supporters of the changes, immediately hailed the council vote as a victory for the public, saying that a number of people had had trouble collecting payments for medical bills and lost wages under the no-fault law.

Council member John Ray (D-At Large), a supporter of the measure approved yesterday, pointed out that insurance rates increased after no-fault went into effect in 1983, although insurance companies had promised that rates would decrease.

He stressed that motorists will now have a choice in coverage: either no-fault or traditional liability insurance, in which an accident victim recovers damages from the insurer of the other party in the accident and retains the right to sue.

Yesterday's action is a reversal of the 7-to-6 council vote that enacted a mandatory no-fault law in 1982 after a bitter fight.

Nadine P. Winter (D-Ward 6) and William R. Spaulding (D-Ward 5), who originally voted for no-fault, switched sides yesterday.

Winter, who is up for reelection next year, said her constituents have complained about the no-fault law at a number of community meetings.

"I have literally taken a beating from people who objected to my advocacy role on no-fault insurance," Winter said. "We all grow on the job."

Also voting in favor of the changes were council members Ray, Frank Smith (D-Ward 1), John A. Wilson (D-Ward 2), Charlene Drew Jarvis (D-Ward 4), Wilhelmina J. Rolark (D-Ward 8) and Carol Schwartz (R-At Large).

The five persons who voted against the no-fault amendments were Council Chairman David A. Clarke, Polly Shackelton (D-Ward 3), H.R. Crawford (D-Ward 7), Hilda Mason (Statehood-At Large) and Betty Ann Kane (D-At Large).

Some of those members also voiced strong objections to a proposal by Schwartz, added to the measure approved yesterday, that would increase the penalties for failing to have insurance.

Under the current law, offenders are subject to fines of up to $300 and 30 days in jail for the first offense and up to $500 and 90 days in jail for subsequent offenses.

Schwartz' plan calls for fines of $500 for the first offense and $1,000 for each subsequent offense.

Clarke called Schwartz' proposal "downright cruel" and said the fines are higher than some penalties imposed for theft and prostitution.

Schwartz, however, argued that the fines are designed to "put teeth into the mandatory law" and that it is useless to have fines that are cheaper than the insurance people are required to purchase.