Mayor Marion Barry last night demoted Jose Gutierrez from his cabinet-level city post and said his confidence in Gutierrez had been "shattered" in the wake of Gutierrez's allegations that he was pressured to award city contracts for political reasons.

City officials also announced that consulting contracts with Thomas J. Mattingly, a telecommunications specialist hired by Gutierrez, had been terminated immediately. Mattingly had publicly supported Gutierrez's allegations, which Gutierrez made after he was transferred earlier this month from his job as the city's chief purchasing officer to a lesser post.

Barry's rapid-fire retaliation against Gutierrez and Mattingly followed several days of intense deliberation by Barry and his top political advisers. It appeared to signal a rough-and-tumble counterattack to blunt unprecedented criticism from within the administration that politics was a significant factor in the awarding of major District contracts.

In response to the mayor's actions, Gutierrez said late yesterday that "It's just a continuation of what started earlier, which is essentially trying to shut me up . . . . This is better than Nixon's Saturday Night Massacre."

City officials, in announcing Mattingly's termination, went so far as to disclose that his private firm was 18 months behind in its contributions to the D.C. unemployment insurance fund. Mattingly said the city's disclosure was a "cheap shot" and "irrelevant to the quality of my advice and recommendations" to the city. He said that he may owe some money to the fund, and if so, will play the amount due within a few days.

Earlier yesterday, City Council member William R. Spaulding (D-Ward 5), chairman of the Government Operations Committee, said he will launch a full-scale review of contracting procedures to determine whether the Department of Administrative Services steered contracts to firms under pressure from higher-ups.

The controversy was triggered late last week when Gutierrez said publicly that he believed he had been transferred from his job as head of the Department of Administrative Services, the city's primary purchasing agency, to the much smaller but still cabinet-level Office of Policy and Program Evaluation because he resisted pressure from City Administrator Thomas Downs to approve several controversial contracts.

One of the main disputes involved the Chesapeake & Potomac Telephone Co.'s efforts to obtain up to $20 million worth of contracts to provide telephone service to the District government, including one contract for a telephone system in the new municipal building at 14th and U streets NW and another for a 911 emergency telephone system.

Mattingly, who was critical of C&P's proposals for the contracts, said over the weekend that Delano Lewis, executive vice president of C&P and a longtime political supporter of the mayor, was exerting political pressure to get the contracts for his company.

Lewis has denied those contentions, saying he has been trying to argue his company's case on its merits.

The controversy over Gutierrez has also created a furor in the city's Hispanic community. For years, Gutierrez has been the highest-ranking Hispanic in the Barry administration. Gutierrez told about 30 Hispanic leaders last week that Downs tried to force him to approve contracts against his better judgment.

A group of Hispanic leaders has scheduled a news conference today to protest Gutierrez's treatment and to criticize Barry for having failed to do enough for the Hispanic community. Marcelo Fernandez-Zayas, a leader of the Hispanic community and longtime supporter of Barry, expressed dismay at the mayor's action.

"This is a pattern of persecution," he said. "My point of view is that if they have charges against Mr. Gutierrez of wrongdoing, bring it forward. If not, then stop the harassment of a longtime employe."

A source said that the Hispanic leaders may meet with Barry, at the mayor's request, after today's press conference. Barry said he invited the leaders to meet with him yesterday but that they declined.

Barry said last night that he had continuing concerns about "serious internal management problems" within the Administrative Services Department, and that the mayor and Gutierrez had agreed on Gutierrez's transfer to the policy office.

"I am shocked that Mr. Gutierrez has not lived up to his agreement," Barry said. "He has attempted to make his move to the policy office a public issue as well as a Hispanic issue, when it really is an internal management issue."

These circumstances, Barry said, "have shattered my confidence in Mr. Gutierrez as a member of my cabinet, and I must reluctantly assign him to another position in the District government."

Gutierrez was transferred to the city's planning department, as a special assistant to the director.

Barry also announced that his legal counsel, Herbert O. Reid, had launched an investigation into possible conflicts of interest that Gutierrez might have had in advocating that the city government lease a building at 1111 E St. NW from a partnership headed by a prominent Hispanic businessman, Angel Roubin.

Gutierrez denied that he approved the contract as a favor to a Hispanic, and added that Downs vetoed his effort to negotiate a deal in which the District would end up with half-ownership of the building at the end of the term of the lease.

"I'm tired of the notion that it's okay for blacks to get contracts, but it's something sneaky or dirty when Hispanics get contracts," Gutierrez said.

Gutierrez said last night that he was disappointed that Barry ordered an investigation of his activities without also looking into Gutierrez's allegations that he was pressured by Downs to award contracts to C&P and others.

William Johnson, who succeeded Gutierrez as head of administrative services, said last night that Mattingly's two consulting contracts totaling nearly $50,000 had been terminated because of concerns about his objectivity. Johnson said Mattingly heads a firm, Metro Telecom Inc., that sells telephone equipment similar to that which Mattingly had advocated that the city buy.

Mattingly said last night that his firm does not sell the equipment he is recommending for the city and he does not do business with any of the companies competing against C&P for the contracts. He said his firm does conduct some business with C&P.

"I fully expected them to try to make an example of me," he said. "Anyone who asks the type of questions Mr. Gutierrez and I have asked is asking for trouble."

Before the announcement of Mattingly's contract termination yesterday, Joseph P. Yeldell, director of the Office of Emergency Preparedness and head of a special task force on the 911 system, said that Mattingly repeatedly ignored directives from Yeldell and other department heads on how to proceed with the 911 contract.

"It's a matter where the operational people understand the technical requirements . . . but we have a consultant Mattingly trying to push the District in his own way of thinking, which is not acceptable," Yeldell said.

In a related matter, the D.C. Contract Review Committee, which reviews city agency requests for noncompetitive contract awards, went against a proposal supported by Gutierrez and Mattingly to purchase 20,000 to 30,000 phones that the city currently is leasing for $3 million a year.

Before he stepped down as director of administrative services, Gutierrez decided that, as an interim step, it would be cheaper to buy the phones for about $1.5 million from AT&T Information Systems rather than continuing to lease them.

In an interview yesterday before his latest transfer, Gutierrez said he would not be "bullied" or pressured out of office, but that he thought Barry might eventually have to choose between him and Downs.

"The choice, as I see it, is honesty and integrity in government on the one hand and cronyism . . . on the other," Gutierrez said. "I can't afford to do anything that smells bad because it negatively affects my ability to pursue the Hispanic agenda.