A request by Alexandria Hospital for a $10.46 million tax-free bond issue backed by the city was approved by the City Council last night over objections by some of the facility's neighbors that it will lead to hospital expansion that would worsen traffic and lower property values.

The new bonds represent a refinancing of part of a 1972 bond issue that hospital officials said was hampered by restrictions making the purchase of new equipment and interim financing difficult.

If the nonprofit hospital is to survive in the increasingly competitive health care business, hospital officials say, it needs the new bonds to bolster its financial capabilities. The bonds are to be paid off through revenue generated by the hospital.

The hospital argued that the new bond sale is not directly linked to expansion plans, but many who live in the neighborhood see the bonds as necessary if the hospital is to go ahead with plans to expand its facilities at Seminary and Howard roads. About 150 persons in the audience at last night's council meeting indicated that they were opposed to the bond issue.

In an effort to allay residents' fears, Thomas C. Brown the hospital's general counsel, said that none of the bond funds will be used to build a planned doctors' office, cancer treatment center and outpatient facility.

"A vote in favor of the refinancing in no way constitutes a signal that the council will approve medical office buildings," Brown said. "It is one thing to oppose development on the property but another to deny the hospital's financial needs." He did say the new financing would make it easier to raise money for new construction.

A. George Cook, chairman of the Alexandria Health Services Corp., the hospital's parent company, said the hospital will return to the council in the spring for special use permits necessary for any additions. Cook also said any hospital plans to expand its western borders by purchasing houses on Ivanhoe Place will be dropped.

The hospital was built in 1962 as a 160-bed facility and now has 414 beds. The houses that border the hospital range from $125,000 to $250,000, according to real estate agents.

Former Mayor Charles E. Beatley, who said he entered politics in the late 1950s because he opposed hospital expansion, asked the council to refinance the bonds only if the hospital agreed to drop plans to build new medical offices. "We have been burned so many times," by the hospital, Beatley said at a previous council meeting, and called proposed additions "barracuda-like expansionism."

Council member Lionel Hope backed the refinancing, which includes the reissuance of a $1.5 million interest-free loan from the city, saying, "I felt the hospital needs more flexibility than they had with the 1972 bonds." Hope said the expansion issue is a separate battle.

Mayor James P. Moran Jr., who works as a stock broker for one of the underwriters for the bonds, did not vote on the matter, having been advised by the city attorney that to do so would violate conflict-of-interest laws. In addition to Hope, Patricia S. Ticer, Margaret B. Inman, Robert L. Calhoun, Carlyle C. Ring, and Redella (Del) Pepper voted for the refinancing.