A decision is expected late today or Wednesday in a Fairfax County School Board lawsuit seeking to force the transfer of a severely retarded 16-year-old girl from a residential institution in Maryland to a day school in the county.

Fairfax Circuit Court Judge William E. Plummer yesterday heard the arguments of attorneys for both the school board and the girl's parents, as well as testimony from two witnesses for the school board. Another witness for the school board still is scheduled to appear on the stand today, and the parents, who are defendants in the suit, also plan to call a number of witnesses.

The county, which pays about $8,700 a year to educate Paula Jane Hurley, the retarded girl, agrues that her current school is too restrictive, and fails to prepare her for daily life in the outside world. The two county witnesses today were critical of Paula's course at the Benedictine School for Exceptional Children in Ridgely, Md., for allegedly failing to teach her skills that she could apply outside the classroom.

Paula's parents and teachers are expected to testify that the Kilmer Center, a public day school for the retarded near Tysons Corner, does not provide the constant supervision and expertise that Paula needs and receives from a residential school. They fear that Paula would regress if she were transferred to a six-hour a-day program such as Kilmer.