By Mark Shade

HARRISBURG, Pa (Reuters) - Harrisburg's city council, at odds with the mayor over how to dig out of a financial hole, approved a budget on Thursday that contains a slight tax increase but cuts the mayor's allotted tax dollars.

Mayor Linda Thompson, with the end of the calendar year approaching, responded by promising to use every day of her 10-day window to decide whether to veto the $54.3 million budget for Pennsylvania's state capital.

"This is no more than council being spiteful," Thompson told a news conference, describing the move as a cowardly act.

Harrisburg is in a $317 million hole due largely to the expensive repairs and upgrading of its trash incinerator. The city council filed for Chapter 9 bankruptcy protection, but the case was dismissed by a federal judge last month, paving the way for a state takeover of the city's finances.

The city council's 2012 spending plan eliminates 10 vacant positions plus the jobs of Thompson's communications director and ombudsman. It also raises the council's line item while decreasing the mayor's allotted tax dollars.

The city council voted 4-1 to adopt the budget and a real estate tax increase that, on average, will cost residents with homes valued at $100,000 an extra $100 a year. David Unkovic, appointed by the governor as receiver to guide the city toward solvency, observed the proceedings but did not take part.

Council member Susan Brown-Wilson said the cut to Thompson's line item should not be misconstrued as a shot across the bow.

"Hopefully, if they've got some issues with what we've done, they'll come down and discuss it with us," Wilson said.

The 2012 budget the city council adopted is $1.9 million less than what Thompson proposed in November and contains the same tax increase. The council said it was likely there would be more budget cuts included in a recovery plan Unkovic submits to Commonwealth Court in February.

"We may eliminate departments in his plan. (City council's) plan may actually look good compared to what may happen in the near future," council member Patty Kim said, adding that the increase in the council's budget was necessary to help an overworked staff and pay court expenses.

The council and the mayor have been at odds over how to lift the city out of its debt. A majority of the city council attempted to enter Harrisburg into Chapter 9 municipal bankruptcy protection while the mayor favored entering the city into a state program called Act 47.

Should Thompson take the entire 10 days to decide if she will veto council's newly adopted budget, the city will operate under the terms of its 2011 budget until both parties agree in a new spending plan that, ultimately, will be decided by Unkovic and Commonwealth Court.

(Editing by Cynthia Johnston)