King George County, Va., threatened with a $35 million lawsuit if it continued to block construction of a plant that would compost the District's sewage sludge and trash, yesterday refused to back down in its opposition to the controversial facility.

County Attorney John P. Harris III, with the three-member Board of Supervisors concurring, told Dano Resource Recovery Inc. that its building permits for the plant were still invalid and that any construction would be illegal.

In his letter on Tuesday threatening to sue the county for $35 million, Dano president B. L. Metcalfe mintained that the permits, which the county revoked last month, were still valid.

Dano has a $20 million, five-year contract with the District to dispose of the city's sludge. A $12.5 million contract for disposal of the city's trash is awaiting Mayor Marion Barry's singnature.

But the contracts will prove valueless unless Dano can find a place to build a composting plant that would convert the sludge and trash into a marketable soil conditioner and fertilizer.

Last year both Prince William and Stafford counties truned down Dano's overtures. After those defeats, Dano settled on King George, in the rural Northern Neck, becasue the county does not have a zoning ordinance that could be used as a weapon against an unwanted facility.

Although the county -- reluctantly -- issued building permits, it revoked them lastmonth, claiming that Dano's construction plans were contradictory.

On Tuesday Dano was scheduled to take title to the proposed plant's site -- the 195-acre Chatterton estate on the Potomac River. But while lawyers for both Dano and the seller, Washington attorney Donald S. Dawson, met, no settlement took place.

Dawsonhs attorney Robert E. O'Malley, said he did not know when or if the settlement would take place, but he added there is still a valid sales contract.

Dano has agree to buy Chatterton From Dawson for $495,000.