A plan to covert the massive and decaying Torpedo Factory complex on Alexandria's waterfront into a public market a large restaurant, a marina and 99 Victorian-style town houses was approved last night by the Alexandria City Council.

The Council's choice of the Alexandria Waterfront Restoration Co., headed by politically active developer Charles R. Hoff III, came at a meeting marked by angry exchanges and a threat of a law suit that could block redevelopment.

The immediate effect of the approval means that the company can enter into negotiations with the city over precise details of its plans for the four hulking gray buildings clustered on 6.25 acres at the foot of King Street. Redevelopment of the Torpedo Factory complex, built during World Wars I and II, is considered a key to revitalizing the city's waterfront.

The designation of the Alexandria Waterfront Restoration Co. could be canceled if the city staff fails to agree with the firm on price and design specifications, according to City Manager Douglas Harman.

What triggered acrimony at last night's council meeting was the unexpected announcement of agreement between Hoff and another developer, the Redstone Development Corp., to merge today if one was chosen the Torpedo Factory's redeveloper. Hoff's company and Redstone were the top choices of a city staff study over two other developers and were bitter rivals before Monday, when the agreement was worked out.

The announcement was made by attorney Bernard Fagelson, representing Redstone, before the council voted. Fagelson read from a prepared statement that the two groups "recognize that the mayor and several members of the council during past weeks have felt that certain changes in either of the two frontrunning plans are necessary in order to provide the best and most desirable plans for the city." He said the new group will be called the Redstone Waterfront Restoration Group.

Council member Robert L. Calhoun said the combined group would produce plans that were only a "collage."

Member Donald C. Casey jabbed his finger in the air and said, "One of you two is going to have to drop out . . . This combined group was not a bidder. The combined group never submitted the $5,000 bid," which was required as a returnable, good-faith deposit last year.

"It's despicable," said coucil member Ellen Pickering. "I say we reject all the bids.

William G. Thomas, an attorney representing the OTV/Watergate Co., a third firm that sought the Torpedo Factory redevelopment, said the firm will sue the council "if the citizens don't sue . . . to stop this . . . However can they do something like this?" he asked, referring to the merger plan.

The council's 5-to-2 vote for the Waterfront Restoration Co., plans followed advice given by City Attorney Cyril D. Calley that it could choose any developer it wanted or reject all the plans before it and that the proposed merger placed the council in two legal jeopardy.

Voting, against the designation were council members. Pickering and Nicholas A. Colasanto.

Council members have said that a combination of the best designs of several plans might be nice, but probably illegal of one developer was chose over another. No council members mentioned the possibility of a merger.

Before refdevelopment can begin the council must approve by no less than a 6-to-1 vote sale of the city-owned buildings between Union and Lee streets. The development and the city staff must reach agreement within 15 days, and the current council-two of whose members voted "no" last night-then can vote on the sale or delay action. A newly elected takes office July 1.

Hofff had endorsed incumbent Calhoun and challenge Carlyle C. Ring Jr., Republicans victorious in last week council election.

Under the Waterfront Redevelopment Co. plan, the east and west ends of the building constructed like a hollow square on the waterfront in Front of historic Carlyle House would be demolished and the 99 condominium town houses built along its remaining parallel sides.

The company would pay $500,000 to the city build $900,000 worth of public improvements and put in 561 parking spaces for residents and visitors

The plan would generate an estimated $619,797 annually in tax revenue and business license fees, according to a city staff report. CAPTION: Picture, Waterfront design submitted by the Alexandria Waterfront Restoration Company. By Craig Herndon-The Washington Post