District Mayor Anthony A. Williams's plan to pay $1,700 bonuses to 6,500 unionized city employees by Dec. 15 was thrown into doubt yesterday when a key Republican congressman accused the mayor of trying to divert money in the D.C. budget illegally to pay for the bonuses.

Williams (D) has proposed tapping an $18 million fund intended for severance payments to fired city workers to help pay for the one-time bonuses. He wants to use about half the $18 million to fund the bonuses in a tight D.C. budget.

But Rep. Ernest J. Istook Jr. (R-Okla.), chairman of the House Appropriations subcommittee on the District, said yesterday that Congress approved the severance fund because lawmakers believed it would be used to reduce the size of the District's work force by about 1,000 employees. The bonuses were not part of the deal, he said.

"If this expenditure occurred, it would be a serious and illegal breach of the purpose of this funding," Istook told Williams late yesterday in a letter that triggered a round of damage-control phone calls involving the mayor, Istook and Del. Eleanor Holmes Norton (D-D.C.).

"It would destroy harmonious relations between the District and Congress," Istook said in the letter. "Diverting funds for an unauthorized purpose is an extremely grave matter. . . . We have already had a diversion problem with the District's courts; we do not need a new one."

D.C. officials said yesterday that they believe Istook misunderstood the city's intent in setting up the severance fund. They added that they believe the city can pay the bonuses by Dec. 15, the day they promised the unions, in time for the holidays.

"Obviously, we're going to exhaust every opportunity we can think of to come up with a way to get this done," said Chief Financial Officer Valerie Holt, adding that if it turns out that the severance fund language in the D.C. budget approved by Congress last week does not permit money for the bonuses, she has a backup plan to find the money.

Interim City Administrator Norman Dong said the city has the money for the bonuses. "We wouldn't have announced it otherwise," he said.

Williams's spokeswoman, Peggy Armstrong, added, "We're not illegally diverting anything."

The lump-sum bonuses were the result of an agreement between unions and Williams, who said workers should be rewarded for giving up wage increases during the city's recent financial crisis. In return, the mayor hopes the unions will agree to his plans to link pay raises to performance and have some D.C. agencies compete with private firms for city contracts.

The cost of the bonuses--estimated at $9 million to $10 million--is part of the D.C. budget approved by Congress last week, and the funds may not be available before Dec. 15. President Clinton still has to sign the bill, and the D.C. Council must approve Williams's plan.

The White House received the bill Monday; the president has until Dec. 3 to sign it. Norton said Clinton would sign the bill next week. The council has a meeting scheduled Dec. 7.

The chief negotiator for unionized city workers said yesterday that during negotiations with the Williams administration over the bonuses, no one from the city ever suggested the government would not have the money for the bonuses. George Johnson, president of Council 20 of the American Federation of State, County and Municipal Employees, said Williams had better find the money by Dec. 15.

"Otherwise, there will be serious repercussions," Johnson said.

Rep. James P. Moran Jr. (Va.), the ranking Democrat on the Appropriations subcommittee on the District, and Rep. Thomas M. Davis III (R-Va.), chairman of the House Government Oversight subcommittee on the District, were not as bothered by Williams's use of the severance money as Istook, although Moran agreed that "the intent of that fund was to reduce the number of D.C. employees by 1,000. It was not intended to be used as bonuses."

Williams, through Norton, was successful in getting language added to a report accompanying the D.C. budget bill before it passed Congress last week that said "a portion of the money may be used as bonus pay."

But Istook stressed that the actual language of the bill still does not mention bonus pay. The bill does require that the $18 million fund generate a 2 to 1 savings by reducing future personnel costs, or a minimum of $36 million.

Diverting half the fund to bonuses, Istook said, would not produce those savings.