Mayor Sharon Pratt Dixon, trying to avoid a large expense, will take steps this week to cancel a controversial $215.6 million lease for a temporary 10-story headquarters for District government employees, according to a source familiar with the administration's deliberations on the contract.

The 20-year lease signed by Mayor Marion Barry last May with developer Richard A. Bennett Jr. was for 293,000 square feet of space in a new building at 800 North Capitol St. NW. About 600 District government employees, including members of the D.C. Council and the mayor, were to use the space while the District Building on Pennsylvania Avenue NW was renovated. At the end of the lease, the building would become city property.

Dixon's spokesman, Vada O'Hara Manager, said yesterday that the mayor had met last week "with her staff and staff from the city administrator's office to discuss the cost of the lease for 800 North Capitol and to look at alternate plans." Manager said the mayor would make an announcement this week.

Canceling the lease could expose the city to legal action by Bennett, the principal contractor for the project. Bennett was a major contributor to Barry's campaign before Barry abandoned plans to run for a fourth term last year. Other investors in the building include Washington Redskins wide receiver Art Monk and former Redskins defensive back Brig Owens.

Bennett could not be reached for comment yesterday.

When the lease was signed, several members of the D.C. Council criticized the agreement because Bennett's building was the most expensive of several sites considered by the Department of Administrative Services. Council members said they were concerned that Barry rushed to sign a lease for the building without competitive bidding, that he entered a long-term lease when a short-term lease was warranted and that there was no guarantee the building would be ready by summer.

The Rivlin Commission's study of District operations and expenses last year concluded that the District should reduce its 3 million square feet of leased space by two-thirds in the next decade. According to the report, the city was spending $41 million for its leased space in 1990, up by $25 million since 1985.