Residents of the Embassy Row neighborhood near Dupont Circle have won another -- and perhaps decisive -- round in their fight to exclude a law firm from the residentially zoned area.

The D.C. Court of Appeals ruled last week that the D.C. Board of Zoning Adjustment acted properly in 1979 when the board reversed its own decision and revoked a special exception to permit the firm of Interdonato, Lombard, Reilly and Comstock to stay in the building at 2210 Massachusetts Ave. NW. The firm has occupied the building -- the former Luxembourg chancery -- since 1978.

It was the second victory this month for the Sheridan-Kalorama Neighborhood Council and other groups that have been trying to limit business and diplomatic missions in the area. On April 1, the zoning adjustment board voted 3 to 2 to reject a second plea by the law firm to grant a zoning variance.

Whayne S. Quin, the firm's attorney, said the firm will occupy the former chancery at least until the zoning adjustment board issues a written order detailing why it denied the request. He said his clients have not decided whether to take further action, and added that the court and zoning adjustment board decisions still have not clarified whether apartment units in the building must be vacated.

The controversy between the residents and the law firm began in 1977, when the zoning adjustment board granted the firm a special exception to occupy the former chancery. In 1979, the Court of Appeals overruled the board's order, holding that under existing regulations, the firm could not continue to occupy the building. The zoning board then reversed itself and revoked Interdonato's exception.

Quin took the case to the appeals court. He also went to the D.C. Zoning Commission, but failed to persuade it to change the regulations. Quin's second request to the zoning adjustment board for a zoning variance then was rejected on April 1.

One of the firm's arguments was that it had invested $650,000 in the former chancery building, and moving would be an economic hardship.

In its decision last week, the Court of Appeals ruled that the Interdonato firm could not rely on the claim of economic hardship in trying to make its case.

"When the application for a special exception was filed, opposition to the application was immediate and strong," Chief Judge Theodore R. Newman Jr. wrote. "And that opposition was unrelenting as the case progressed. . . . Petitioners' (the Interdonato firm's) decision to proceed with their investment under those circumstances was solely at their risk."

Michael S. Levy, attorney for the neighborhood group, said property owners in the area have been approached by real estate brokers representing other law firms wanting to move into the area, causing residents to fear that the character of the neighborhood would change if the Interdonato firm were allowed to stay.