The Office of Management and Budget ended weeks of dispute with the U.S. Census Bureau yesterday by ordering it to drop three of about 70 questions the bureau had proposed for the next census, and to use seven others only on a "long form" that goes to a limited sample of houses.

The three deleted questions involved fuels and household utilities. The seven permitted only on the long form involve housing.

The OMB approved all proposed questions on fertility, transportation and labor market participation, although earlier it had questioned some of them.

As a result of these changes, the "short form" questionnaires, which go to all U.S. dwellings, will be reduced from 17 questions to 10 -- seven on sex, race, age, marital status, family relationships and Hispanic origin, and three on housing.

The long form, which goes to a sixth or fewer households, will be cut by three from the previously proposed total of about 70. The total will include all the short form questions plus additional more detailed ones on a wide variety of subjects.

The OMB ruling came after lengthy discussions between the agency and the Census Bureau and after the OMB received hundreds of letters from state and local government agencies, businesses and others using census local-area data, protesting what they feared might be wholesale deletion of as many as 30 questions.

Most of the letters said that detailed information about local neighborhoods -- as small as a city block or street in some cases -- is vital in planning local transportation, housing and labor services, and is available only from the full decennial census.

The OMB decision was outlined by Wendy L. Gramm, administrator for the Office of Information and Regulatory Affairs, in a letter to the Commerce Department, the Census Bureau's parent agency.

Census Deputy Director Louis Kincannon, a former OMB official who represented the bureau in discussions with the OMB, said last night in an interview, "We are pleased that they are satisfied with our justifications on most of the questions. We can live with this."

The OMB decision, under the Paperwork Reduction Act, was designed to reduce the complexity and difficulty of the questionnaires. Technically, yesterday's decision applies only to forms to be used for a "dress rehearsal" census to be held in three areas on March 20, 1988, but it has always been assumed that the same forms would also be used in the full census in April 1990.

Gramm's letter also said it is not necessary to send the long form to the entire one-sixth of dwellings -- about 16 million -- proposed by the Census Bureau, and that in heavily populated areas, a smaller sample would produce accurate results. She gave the Census Bureau two options for reducing the size of the sample.

The three questions to be dropped were all proposed for the long form only. They asked the kind of heating equipment used, the fuel most used for heating water, and the yearly costs of utilities and fuels. Gramm said an analysis of test results in 1979 showed these questions "produced responses that were exaggerated by about 50 percent."

The seven housing questions that would be dropped from the short form but retained on the long form involved the number of rooms, plumbing facilities in the home, condominium status, acreage of the plot and presence of a business, presence of a phone, value of the property and monthly rent. The household telephone number, if any, would be requested on the back cover of both the short and long forms instead of being sought in a formal question inside the questionnaire.