The D.C. Council unanimously approved permanent legislation yesterday making it the overseer of all city leases and contracts worth more than $1 million, despite strong objections from Mayor-Elect Sharon Pratt Dixon.

Dixon had supported the council's adoption of emergency legislation preventing outgoing Mayor Marion Barry from approving major spending measures without council approval. However, she warned that enactment of permanent legislation would hamper her efforts to reform city government.

Dixon said yesterday that while she was sympathetic with the council's concerns about abuses of city contracting, "Today's action by the city council is unfortunate as it seems to undermine our mutual goal of bringing about a new day in District government and satisfying the will of the people."

However, Council Chairman-Elect John A. Wilson, who advocates an enhanced role for the council in government activity, said, "I don't think this reduces anybody's ability to run the government."

"It allows for ongoing evaluation of how we spend our money and what we're spending it for," said Wilson (D-Ward 2). "I don't particularly think it is our intention to have more than one mayor in the city. The mayor is the mayor. But I don't believe in the imperial mayor."

The council put off for this year action on another bill that would limit the mayor and council chairman to two terms in office.

It also delayed for at least a week any decision on a proposal to provide Dixon with $150,000 to cover the expenses of her transition team, as well as to provide Barry and outgoing Council Chairman David A. Clarke with $50,000 each to help in their transition to private life. Barry also has asked for police protection for six months after he leaves office.

During an afternoon recess, council members discussed their options on transition funding during an extraordinary closed-door meeting that lasted an hour.

In a rare action, the council also agreed to a height exemption for a planned residential and commercial development downtown, one block off Pennsylvania Avenue near the FBI Building.

The council voted to allow Market Square North to rise 130 feet. It marks only the second time that the council has approved a specific departure from a 1910 law that restricts building height to the width of the street plus 20 feet.

Council member William Lightfoot (I-At Large) argued against the exemption, saying it was a "bad precedent," while other council members asserted that the exemption would create more housing at a time when the city needs extra tax revenue.

The council also approved emergency legislation to immediately reduce services for the homeless, putting into motion restrictions that already had been approved.

Earlier this year, the council voted to cut spending for the homeless by $13 millon for fiscal 1991. That decision was challenged in a referendum in November in which the voters supported the council cutbacks.

The council's voice-vote approval of the contracting and leasing legislation marks a major shift of power in D.C. government, where the mayor traditionally has enjoyed substantial authority in awarding major contracts and leases. While Dixon and council leaders insisted this was not the case, some political observers viewed yesterday's vote as an important test of the mayor-elect's influence with the council.

The bill, sponsored by outgoing council member Betty Ann Kane (D-At Large), was amended to expand the council's review powers to include the purchase of all goods and services worth more than $1 million.

Lightfoot offered the amendment in response to a memorandum from City Auditor Otis H. Troupe.

The amendment "will require better planning on the part of the executive branch," Lightfoot said. "This will make them toe the line."

Kane, a member of Dixon's transition team, and council members Nadine P. Winter (D-Ward 6) and H.R. Crawford (D-Ward 7) voted against the amendment. Kane said that Lightfoot's concerns already are addressed in an existing city procurement law.

"There is not a problem with that law," she said. "There is a problem with the practice and misuse" of the procurement law.

Throughout the discussion, council members sought to portray the measure as one that enhances government accountability and review, rather than undercuts the incoming mayor.

Council member Harry Thomas Sr. (D-Ward 5), who had pledged to support Dixon on the issue, said he changed after concluding that the measure had overwhelming support and that he might as well go along with the majority.

"The people who are the noes are the lame ducks," Thomas said.

The bill must receive a final vote from the council before it is sent on to the mayor's office.

Policies for issuing contracts and leases are varied in municipalities and counties throughout the metropolitan area.

In Montgomery County, for example, contracts are the sole responsibility of the executive branch, although the County Council has the authority to appropriate the funding, according to Michael Faden, an attorney for the Montgomery Council.

As for Fairfax County, all contracts for professional and consulting services and purchases not approved as part of the annual operating budget and costing more than $25,000 must be approved by the Board of Supervisors.

In Loudoun County, any contracts or leases for more than $100,000 must go to the Board of Supervisors for approval, said Jim Barnes, a county spokesman. Contracts or leases for less than $100,000 can be approved by various county staff members, he said.

In Prince William County, all leases must be approved by the Board of County Supervisors. As for contracts, county officials seek board approval for those costing more than $10,000. In Fairfax City, the city manager can sign contracts and leases for budgeted items up to the amount budgeted.

Staff writers Mary Ann French, Stephanie Griffith, Jeff Rowland, Robert O'Harrow, Claudia Sandlin, Jo-Ann Armao and Whitney Redding contributed to this report.