In its first major test of President Reagan's new federalism, Leesburg is asking the state for $450,000 in community development funds.

The funds would be used to revitalize an ailing neighborhood on the edge of downtown Leesburg.

The town already has received a $450,000 federal grant to begin the $1.3 million, three-year project to redevelop the South Harrison Street neighborhood, and had been seeking another $450,000 for the second phase of the program this year.

Under new federal regulations, community development funds are sent to the states, which then decide how to allocate the funds.

"Under the new federalism, communities over 50,000 must go to the state and compete with other communities our size for the block-grant money," Marc Weiss, assistant town manager, said. "We're hoping to hear back from the state by early September to get on with the program."

Last week, the Town Council formally asked the state to approve the $450,000 grant.

If approved, the money would be used to improve street and water lines in the South Harrison Street neighborhood, construct a neighborhood park, assist in constructing 12 new town houses, relocate a business and establish a farmers' market on 34 acres southeast of downtown.