A D.C. Superior Court judge struck down yesterday the sweeping workers' injury reform law passed last April by the City Council, saying that city officials had unduly encroached on an on-going federal program without the permission of Congress.

The five-month-old law -- which was not slated to go into effect until October 1981 -- had pitted the city's labor organization against the business establishment like never before over the soaring cost of workers' injury insurance premiums.

These costs, borne by private employers to cover their workers, had leaped from about $20 million for all District businesses in 1972 to a projected $140 million this year.

The ruling was a serious setback for the city's business leaders, who had lobbied more fiercely in favor of the workers' compensation bill introduced by council member Willie J. Hardy (D-Ward 7) than on virtually any other piece of local legislation in recent history.

Labor groups were quick to claim victory for the day, after having been defeated in a long council debate early this year, but it was clear that another battle would be fought in the D.C. Court of Appeals. The city's lawyer at yesterday's hearing, Gary Freeman, said he could not comment, but an appeal is expected.

"It's a proud day for labor, and we feel vindicated," said Joslyn Williams of the Greater Washington Central Labor Council, which brought the suit in July after Congress failed to take action in the 30-day review period allowed for all city legislation.

The workers compensation system for about 300,000 private employes in the District has been adminstered by the federal government since 1928. At that time, D.C. workers were lumped with seamen as "stateless" wards who needed the same protections being offered by state workers' compensation laws then cropping up throughout the country.

Under the system, the worker trades his right to file negligence suits for job-related injuries in return for no-fault insurance coverage paid for by his employer.

Judge John F. Doyle's ruling said that the city had illegally changed the law because it, in effect, legislated out of existence the federal program.

Specifically, Doyle said the city's action was prohibited under sections 602 (a) and (b) of the Home Rule Act of 1975. The first of these sections prohibits the council from enacting any law that concerns the functions of the federal government or the federal courts.

The second section prohibits the council from giving itself any greater authority than expressly granted by Home Rule provisions. It also prohibits the city from assuming any more responsibility from federal agencies than already granted before Home Rule.

The council act attempted to transfer those responsibilities to D.C. Superior Court and the D.C. Court of Appeals. Doyle said such a transfer of power was impossible without the permission of Congress.

Doyle delivered his ruling in a 20-minute discourse from the bench, punctuated by references and citations that he plucked from stacks of law books gathered around him.

In essence, the judge's ruling confirmed the apprehensions of many city and business officials about the council's authority to undo a federal program. aIndeed, the D.C. Corporation Counsel's office issued as early opinion raising many of the same points as yesterday's ruling.

But in a sudden reversal after business and political pressure mounted to push through Hardy's bill, Corporation Counsel Judith W. Rogers personally redrafted the opinion and narrowly concluded that the council had authority to change the law.

Part of the evidence cited by labor groups trying to prove that the city had overstepped its Home Rule boundaries was a 1973 letter from then labor secretary William Brennan asking Congess to turn over the program to the District. Doyle ruled that by its silence, the Congress declined to give the program to the city government.

Labor groups adamantly favor the compensation program in its present form, under which District workers enjoy the highest benefit levels of any state in the nation except Alaska. The maximum weekly payment for total disability in D.C. is two-thirds of salary, tax free up to $426 a week.

Ralph W. Frey, president of the Greater Washington Board of Trade, which mobilized the business community in favor of Hardy's bill, said yesterday, "As we understand the opinion, it appears to be a setback. It's unfortunate because employers have had to bear the extraordinary costs of the workers' compensation program . . . [and] the city can ill afford to lose further jobs because of this program."

Business groups have contended that the high cost of workers' injury insurance premiums are driving businesses into the suburbs, where insurance rates are half as much or less.

Business representatives of the Washington Post, breaking with a tradition of silence on city legislative matters, participated in lobbying the City Council on behalf of Hardy's bill because, they said, the stakes were to high.

Joseph H. Koonz Jr., who heads one of two law firms that specialize in workers' compensation cases, represented the labor council at the hearing. "We've won the battle, but we'ved still got to win the war," he said.

Labor officials vigorously objected to portions of the City Council act, one of which would change the presumptions of the law that say a worker who says he was injured on the job is presumed to be injured and entitled to compensation unless the employer can produce "substantial evidence" to the contrary. The Hardy bill lessened the burden of proof on employers so as to make it easier to challenge claims they consider frivolous.

Hardy, who tied some of her political fortunes to the war waged by business to change the law, later declined to seek reelection. The consensus among many political observers was that working class voters in her ward would withdraw their support because of her role in the workers' compensation battle.

A parallel lawsuit filed against the law in U.S. District Court is scheduled for hearing on Oct. 6.