The D.C. government this summer quietly permitted a contractor to dump thousands of tons of chemically treated sewage sludge near the Fort Lincoln "new town" development in Northeast and on the grounds of St. Elizabeths Hospital for the mentally ill.

The clay-like substance, called "Chemfix," also was used to level the terrain of a residential park near 18th and Frankford streets SE, according to an official of the D.C. Department of Environmental Services.

Chemfix, a byproduct of the Blue Plains waste water-treatment plant in Southwest Washington, gives off a strong odor when left uncovered by soil. A city official acknowledged in a memo that pollution control at the Fort Lincoln site "may present a long-term maintenance problem."

City officials said the Chemfix--which previously was disposed of in suburban landfills--was dumped at St. Elizabeths over a period of time in July and at Fort Lincoln during the first three weeks of August. Dumping at the Southeast park occurred around the same time, officials said.

The sludge was hauled to the three sites by the Jones & Artis Construction Co., a local firm active in the District and suburban Maryland, and National Environmental Controls Inc.

The two firms have a joint contract with the city to dispose of about 40 percent of the sludge that builds up daily at the regional Blue Plains plant.

City officials said the Chemfix was used at the three sites as part of legitimate land reclamation activities. The dumping was abruptly halted after Theodore R. Hagans, developer of the Fort Lincoln housing and commercial project, and City Council member Wilhelmina J. Rolark (D-Ward 8), who represents residents near St. Elizabeths in Southeast Washington, angrily objected.

William Johnson, director of the Department of Environmental Services, defended the city's use of Chemfix in residential areas and insisted that it did not pose a threat to public health.

"The District has a responsibility to place some of its material like other jurisdictions . . . but the city doesn't have a lot of land to move it onto," Johnson said. "This sludge is a very emotional issue. People have bad feelings about sludge."

However, the DES memorandum that temporarily authorized the contractor to dispose of Chemfix near Fort Lincoln warned of possible long-term problems--even with precautions taken to avoid pollution of a nearby stream and the Anacostia River. "We wish to point out that leachate control at the proposed site may present a long-term maintenance problem," James H. McDermott, DES acting administrator of environmental standards, said in the Aug. 8 memo.

A spokeswoman for Mayor Marion Barry declined to comment on the dumping.

Officials of Jones & Artis could not be reached for comment. David Donaldson, executive vice president of Chemfix Technologies Inc., a subcontractor, said his firm has encountered few problems in using the material as landfill.

Donaldson said the material is processed so that "the hazardous material in it doesn't leach out." He added, however, "Like any clay material, it does present problems with heavy rains. . .It gets soft, but it won't revert to sludge."

A DES source said the dumping at Fort Lincoln involved roughly 10,000 tons of Chemfix. The source indicated that less than 1,000 tons of the material was used at St. Elizabeths. There was no immediate estimate of the amount used at the park in Southeast.

Hagans, who could not be reached for comment yesterday, complained that the Chemfix dumping operation near his project turned out to be "far more extensive" than originally planned, according to DES officials.

Jones & Artis used the Chemfix as landfill southeast of the intersection of New York and South Dakota avenues NE on land owned by the D.C. Department of Housing and Community Development, across from a senior citizens' high-rise and the site of a proposed cluster of town houses and shops.

Rolark protested to Mayor Barry in mid-July that she had not been told in advance of plans to haul Chemfix to an incinerator dumping site on the grounds of St. Elizabeths, near Lebaum Street SE and Rte. I-295. Rolark said she received scores of complaints from nearby residents about a noxious ammonia-like odor emitted by the material.

"I was not called by city officials about it and that's what made me furious," Rolark said. "I considered it an affront to me and the community and the patients at the hospital that they put that stinky stuff there.

"It fouls the air, and air pollution is the number-one health problem," she said. "No matter how they try to minimize possible dangers , I don't think that a sludge compost should be permitted in a congested residential area."

Dr. Harold Thomas, a spokesman for St. Elizabeths, said yesterday that the hospital has an agreement with the D.C. government permitting the city to dispose of landfill material as it sees fit in a huge ravine on the hospital grounds.

"I'm not aware we knew what the material was until there were complaints," he said. "It was used on our landfill to prepare the land for seeding."

The District government, which for years has struggled with a sludge disposal problem, currently is responsible for disposing of about 900 tons of the 1,500 tons of sludge generated daily at Blue Plains. The Washington Suburban Sanitary Commission is responsible for disposing of the rest.

The city's problem reached critical proportions in early July, after Jones & Artis lost its temporary permit to dump sludge at the Brown Station Road landfill in Prince George's County, which generally refuses to accept sludge.

Faced with growing stockpiles of Chemfix at Blue Plains and no place to dump it, District government officials agreed to let Jones & Artis dispose of it within the city limits--the first time such an arrangement has been made with a contractor.

"We probably wouldn't have done it if they the contractor hadn't lost their site in Maryland," Johnson said. " Blue Plains operates 24 hours a day and we had to protect the city's interest."

In late 1981, the city hired Jones & Artis/National Environmental Controls on a trial basis, without seeking competitive bids. Since then, the city has increased its business with the joint venture, each time renegotiating the contract.

Last month, the city entered into a new agreement to pay the joint venture $38 to $40 per ton for disposing of 600 tons of sludge daily at Blue Plains. The noncompetitive agreement will gross at least $8 million a year for the company.

Jones & Artis also is under contract to DES to design a method of using bacteria in sewage treatment. If the department decides to implement the process, Jones & Artis would land another multimillion-dollar contract, according to DES officials.

Jones & Artis has been politically active. Carl D. Jones, a principal officer of the firm, and several Jones & Artis corporate entities contributed a total of $5,500 to Mayor Barry's 1982 reelection campaign.