The Montgomery County Council voted unanimously yesterday to restore its controversial program of transferable development rights, which allows developers to build more housing than zoning would normally allow in eight designated areas.

But council members, whose action was a defeat for citizens groups who oppose the program, acknowledged that the seven-year-old TDR process is flawed and that it must be reexamined.

Council members said they had no choice but to reestablish the TDR process, which was ruled illegal two months ago by the Maryland Court of Appeals, because of the thousands of people whose houses were built through the use of TDRs, but whose property rights were clouded by the court ruling.

"We have to make whole those people innocently caught up in our government snafu," said council member Michael L. Gudis. The court's ruling, in a major disruption of the county real estate market, called into question title and other property rights to 7,356 houses.

However, opponents yesterday charged the council with breaking faith with citizens and buckling instead to the interests of land developers. "I take issue with their definition of innocent parties . . . the time has come for this council to do something about controlling development and not just talking about it," said Sarah Greening of the West Montgomery County Citizens Association, which blames the use of TDRs for overdevelopment and successfully sued the county to stop it.

The TDR program limits owners of rural property in developing their land, but allows them to sell the development rights of that land.

Developers buy these rights and use them to build more housing units than zoning would normally allow in designated areas in parts of Potomac, Damascus, Germantown, Gaithersburg, Olney, Darnestown, Travilah and the eastern county Rte. 29 corridor.

The unusual zoning program has been hailed for helping preserve farm land and open space.

But it is criticized as "checkbook zoning" because developers can buy for about $5,000 per house the right to exceed zoning rules.

The appeals court on April 1 ruled the program illegal, saying the council wrongly enacted it by using its planning powers rather than passing a formal zoning change governed by state law.

The council yesterday began the process to formally approve a new form of TDR zoning.

The council adopted a grandfather clause to make legitimate the past use of TDRs, extending protection to any development that has reached the stage of subdivision approval.

Affected are the 7,356 dwelling units, some already occupied, some under construction and some under contract to be built.

That extension was a defeat for TDR opponents who had argued that only those properties with valid building permits before April 1 should be grandfathered.

One reason for that argument was to prevent further construction of the Avenel Farms in Potomac, the 1,000-acre development at issue in the appeals court ruling.

Avenel, using TDRs, will include 850 houses to be built on land that is zoned for 391.

Anthony Natalli, whose Potomac Investment Associates is developing Avenel, said he has the required subdivision approval and presumably the next step is to obtain building permits.

After the court's ruling, the county placed a hold on issuing 376 building permits.

After County executive Sidney Kramer approves the council action, which he is expected to do this morning, building permits can be issued, County Attorney Paul A. McGuckian said.

Not affected by the council's grandfather clause are 986 dwelling units for which developers have submitted preliminary subdivision plans.

Stephen Z. Kaufman, a lawyer with Linowes & Blocher, noted that these developers also have invested substantial time and money.

However, he expressed confidence that these houses would eventually be made legal.

The council yesterday created a new class of zoning for one-family houses that will permit the use of TDRs, with the new zones corresponding to the original TDR sites.

The council is set to formally enact the rezoning July 10, one day after it holds the required public hearings. Members of the West Montgomery County citizens group said they again would try to change the the minds of council members about designating certain areas as "receiving areas" for TDRs.

Council member Bruce Adams promised that the council would take a hard look at the specific parcels of land to see if they could appropriately handle the extra density. Adams said he also would introduce legislation to form a study group to examine the TDR program.

That suggestion was labeled as "paralysis by analysis" by a visibly irritated member, William E. Hanna Jr.

But other council members agreed they wanted the program reexamined.

Council President Rose Crenca, who has long been a foe of TDRs, was singled out for criticism by West Montgomery's Greening.

"Why go along with something if you're opposed to it?" she asked.