STUDY URGES CUTS IN FIRE DEPT. TO BOLSTER CITY POLICE BUDGET

New York City should maintain the size of its Police Department in coming years and make every effort to increase it, largely by diverting funds from the Fire Department, according to a study released yesterday by a private panel.

The study, made by the Citizens Budget Commission, said the Fire Department could absorb ''major reductions'' because the number of fires had declined by 27 percent in the last five years, while the number of firefighters and officers has remained stable, at around 11,500.

It said that between 500 and 1,500 positions could be eliminated at an annual saving of $20 million to $60 million, depending on the extent of the changes undertaken. Serious Problem for City

At the same time, the study said, recent increases in the size of the police force had improved the quality of police work, but high crime rates reflected a continuing serious problem for the city. Thus, it said, any money saved from cutting the Fire Department should be made available to the Police Department to hire more officers.

It did not suggest how many additional officers should be hired, but the authors said in an interview that they thought that Mayor Koch was wrong to cancel a plan to increase the Police Department by 700 officers this fiscal year. Mayoral aides have said Mr. Koch's subsequent plan to maintain the department's present size would also be scrapped and the department would lose as many as 1,800 officers through attrition over the next 18 months.

''The citizens of New York City clearly want more police officers on the street, and their sentiment is correct,'' said Lawrence S. Huntington, chairman of the commission, which monitors municipal government and services. ''By contrast, the city does not need as many fire personnel, given the declining number of responses they must make.''