The Washington Project for the Arts, whose city-owned building at 1227 G St. NW is about to be demolished, has found another downtown home.

If all goes as expected, the WPA will reopen in the fall at 400-404 7th St. NW -- immediately next door to the six commercial galleries at number 406. That art-filled block of Seventh Street is fast replacing the dying P Street Strip.

The WPA will occupy the first three floors of the long-vacant corner building which artist Eric Rudd has arranged to rent from its private owners. Rudd intends to make it a nonprofit center for the arts. Though the WPA has always rented from the city, no government funds are involved in this transaction.

Banker George Didden Jr., president of the National Capital Bank, his cousin, Charles Carry, and their family's firm, Albert Carry Properties -- which has owned the brick six-story building since 1923 -- have dealt with Rudd before. And their real estate transactions having significantly altered the art scene of this city.

In 1978, Rudd bought a Carry warehouse at 52 O St. NW which he filled with artists' studios. Following Rudd's lead, developer Robert Lennon and dealer Ramon Osuna soon bought another warehouse, at 60 O St. NW, which they also rented out to artists. Lennon and developer Jonathan Bowers than bought an acre lot at 57 N St. NW on which they plan to build the Hanover Arts Project. "Their buildings," says Rudd, "have been fixed up SoHo-style." Sculptors Nade Haley and Betsy Falk, painters Rudd, Polly Kraft, and Charles Sleichter -- and 40 other artists as well as one commercial gallery, the Diane Brown Sculpture Space -- now have space on that block.

"The corner of 7th and D streets NW is the ideal location for the WPA," said its director Al Nodal. Two national museums, the National Portrait Gallery and the National Museum of American Art, are two blocks to the north; dealers Harry Lunn, Nancy McIntosh, B. L. Kornblatt and Angus Whyte, as well as both Brown and Osuna, have galleries next door, and the museums of the Mall are a short walk to the south.

"We're just beginning to develop Seventh Street," said Robert Lennon yesterday. "When we're finished it will be to Washington what 57th Street is to Manhattan." Lennon put together the project that brought commercial galleries to 406 7th St.; in a newly formed partnership with Calvin Cafritz, whose wife is painter Enid Sanford, Lennon also is redeveloping the buildings at 401-417 7th St., a project he calls "Gallery Row." In addition, Lennon has a 10-year lease on 501 7th St., a building he also plans to fill with galleries.

The 30,000-square-foot building Rudd will refurbish used to house the dime store, F&W Grand. Lawyers, dentists and accountants leased the offices above. The WPA will get the 15,000 square feet of the first three floors. Rudd expects galleries, an art school or perhaps an art supply store may take the upper floors.

The Pennsylvania Avenue Development Corporation, which has the right to take the building by eminent domain, is known to support the proposed relocation there of the WPA.

"We'll start cleaning up the building." said Rudd, "in the next few days."