The D.C. City Council gave final approval yesterday to a bill prohibiting health and life insurance companies from turning away those who test positive for exposure to the AIDS virus, taking a stand against what some council members described as rising public hysteria over the disease.

The bill, believed to be the strongest antidiscrimination legislation of its type in the country, was amended before the final vote to provide for smaller fines than originally proposed.

However, spokesmen for the insurance industry, which spent $200,000 trying to defeat the bill, described the final version as no less objectionable. "The bill makes a special case for AIDS," said Russel P. Iuculano, lobbyist for the American Council of Life Insurance.

He warned that the legislation might result in higher rates for all those who need insurance as "companies build in margins to ensure their ability to pay AIDS claims."

Council member John Ray (D-At Large), sponsor of the bill, said it will prevent insurance companies from excluding a group of people from coverage on the basis of "social stigma" rather than hard evidence about the risks of contracting acquired immune deficiency syndrome.

"You don't get this crazy reaction" to other diseases, Ray said. He said he hoped that the bill would show "we as a city are going to treat this disease with common sense" and "reduce some of the fear."

The council also gave preliminary approval to a program that would allow city residents to purchase abandoned or dilapidated homes for as little as $250 if they agree to make repairs and live in the homes for five years. At least half of the new owners would have to be low- and moderate-income families or groups.

The AIDS insurance bill, passed unanimously by voice vote, would not force insurance companies to provide coverage for anyone who has been diagnosed as suffering from AIDS. It would provide for fines of $50 to $300 a day for insurance agents who deny coverage to anyone who tests positive for exposure to AIDS. Companies that violate the provisions could be fined $1,000 to $10,000 a day.

Ray and other proponents of the bill contend that the current tests are not sophisticated enough to determine the actual risk of contracting the disease. They further argue that the disease is too new for insurance companies to fairly determine whether they should charge higher rates for those who test positive, as they do for smokers.

The legislation prohibits higher rates for at least five years for those who test positive.

It also bans companies from using factors such as an applicant's sex, marital status or sexual preference in determining whether to provide insurance coverage.

Ray said the D.C. corporation counsel's office would investigate claims of discrimination and take violators to court for penalties.

Those who believe they have been unfairly denied coverage can also sue insurance providers on their own, he said.

Mayor Marion Barry has indicated "he can't wait to sign it," Ray said.