The D.C. Council voted last night to give final authority on taxi rates and rules to the full D.C. Taxicab Commission and created a special fund for the commission to study rules and rates governing the operation of cabs.

The council's preliminary action stems from a bitter dispute between the five-member rates panel and the full 13-member commission over the authority for rate changes.

Last month, the rates panel, in a move that outraged city cabdrivers, approved a flat 40-cent-a-ride increase in taxi fares to go into effect March 1. A majority of the city's cab company owners favored an increase of 23 percent for each zone.

The taxicab commission was formed nine months ago to find ways to improve the city's deteriorating cab industry. Cab owners said an increase, the first in three years, was needed to reverse the slide in cab equipment and service.

The council acted after taxicab commission Chairman Arrington Dixon and eight fellow commissioners requested final authority on rate questions.

Dixon had vowed to appeal the flat 40-cent increase to the full commission after the five-member panel approved it last month, but his authority to do so was unclear. It was unclear last night how the council's preliminary action, which is up for final approval in two weeks, will affect the March 1 rate change.

Council member Nadine P. Winter (D-Ward 6), who introduced the legislation, said the council's approval would give the commission the flexibility to do its business.

Under a second measure, which also needs final approval of the council, the commission would receive the authority to assess each city cabdriver a $50 fee. That fee would be placed in a special fund, which would be used to investigate plans for rules and rate changes governing the cab industry.

Winter said that there are about 7,300 cabdrivers in the city and that the fund is expected to bring in about $400,000. Under the legislation, the commission would have to present to the council for its review an annual report of the money received and how it was spent.