The tiny but feisty D.C. Republican Party held its first fund-raising dinner in seven years last night but first managed to divide itself in controversy over which prospective presidential candidate would be the keynote speaker at the $100-a-plate event.

Rep. Jack Kemp (R-N.Y.), who has been sparring with Vice President Bush at events throughout the country recently as they start preliminary but unofficial electioneering for 1988, was the speaker.

But not before National Committeeman Michael Gill, a member of Bush's local steering committee, resigned as chairman of the dinner over the selection in January, after only three days on the job.

Gill and city party chairman Ann Heuer last night played down the division, although Gill did acknowledge that he quit because Kemp was chosen before he could play a part in the selection.

One source involved in the dinner preparations said that five prominent Republicans, including Kemp, Bush and Senate Majority Leader Robert J. Dole (R-Kan.), were invited at the same time and that the one who responded affirmatively first was to be the speaker. This source said that Bush responded first and said he would speak if the date could be moved to April. Kemp then responded that he would speak at the date requested, and so Kemp was accepted, this source said.

Bush spokesmen could not be reached last night.

Heuer said that Kemp was selected because someone came to her and said Kemp would like to speak. The party had "asked about the possibility of having Bush" as a speaker but had not actually invited him, she said.

"I particularly wanted to have the dinner in March" because it is close to Lincoln's birthday, she said. Kemp was "the right person to have as the speaker" because he is trying to say that "the party should broaden its base," Heuer said.

"It's more interesting to hear Kemp because we hear the president and the vice president all the time," she said.

At one point last night, Kemp said that he had been called a "voodoo economist," an apparent swipe at Bush who, during the 1980 campaign, used a version of that phrase to criticize then-presidential candidate Ronald Reagan for his support of tax policies Kemp had been espousing -- and which Bush has since embraced.

Several local Republicans at the dinner said they believed that local party members are about equally divided between Kemp and Bush.

The fund-raiser drew 520 people and netted about $20,000 for the city's Republican Party, the largest amount raised in a single event here, Heuer said.

Heuer said the party will put up Republicans for selected D.C. City Council races. One source said an announcement will be made soon about Republican challengers to D.C. City Council members Hilda Mason (Statehood-At Large) and Nadine P. Winter (D-Ward 6).

Kemp, in a 40-minute speech filled with references to President Lincoln and the Emancipation Proclamation, called on the city's Republicans to "reach out to the folks who have not felt particularly comfortable in the Republican Party" and to "build a party on pluralism . . . irrespective of color or culture."

"We need a second war on poverty -- or maybe a first war on poverty. It has to be waged in the private sector," Kemp said. "The American people want to work, irrespective of color," Kemp told the Republicans. "We want to be the party to put them back to work."