B737 ON LEVELOFF AT FL350 EXPERIENCED A 200 FT ERROR IN THE CAPT'S ALTIMETER AND WAS ALERTED BY ATC OF A 300 FT EXCURSION.

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I WAS CAPT ON FLT FROM BNA TO DFW. AT LEVELOFF (FO IS PF) WE NOTED THAT CAPT'S ALTIMETER READING 200 FT BELOW BOTH THE FO'S ALTIMETER AND THE STANDBY. FO WAS FLYING ON AUTOPLT MAINTAINING ALT ON HIS ALTIMETER. AFTER A SHORT PERIOD AT CRUISE; THE AUTOPLT DISENGAGED WITH NO AURAL WARNING; HOWEVER; THE CALL CHIME RANG IN THE PAX CABIN. SIMULTANEOUSLY THE LEADING EDGE IN TRANSIT LIGHT ILLUMINATED. FO BEGAN HAND FLYING AND I TOLD HIM TO USE MY ALTIMETER TO KEEP ATC HAPPY AND KEEP; WHAT I THOUGHT WOULD BE THE GREATEST LATITUDE IN MAINTAINING OUR ASSIGNED ALT; SINCE I BELIEVE ATC READS THE #1 ALTIMETER. IN THE PROCESS OF TROUBLESHOOTING THE DISASSOCIATED FLAP AND AUTOPLT PROB; ATC ASKED OUR ALT AND WE REPLIED FL350; BUT HAD A DISCREPANCY IN OUR ONBOARD ALTIMETERS. I ASKED ATC WHAT HE WAS SHOWING FOR ALT TO WHICH HE REPLIED THAT HE SHOWED US 200-300 FT HIGH; AFTER WHICH THE FO FLEW ALT WITH REF TO HIS INST. TO POSSIBLY REDUCE THE ALTIMETER APPARENT ERROR AND MAKE HAND FLYING EASIER; WE REQUESTED FL310; WHICH DID REDUCE THE ERROR SOMEWHAT. SHORTLY AFTER REACHING FL310 AND AFTER TROUBLESHOOTING FLAP/AUTOPLT PROB WITH 2 CALLS TO THE COMPANY; THE SIT WITH THE AUTOPLTS AND FLAPS REVERSED ITSELF AND RETURNED TO NORMAL. COMPLETED REMAINDER OF FLT UNEVENTFULLY.