The 1700 block of P Street NW, with its expensive brick town houses and stately apartment buildings, is an unlikely combat zone. But it has become the site of a battle over a tiny parcel of land just east of Dupont Circle.

A small but vociferous band of Dupont Circle area residents is fighting to preserve the residential flavor of the fashionable neighborhood while the Brookings Institution, a cash-starved scholarly organization, wants to develop the site for commercial use.

The war between Brookings, a liberal "think tank" with offices on Massachusetts Avenue one block south of P Street, and area residents promises to be a long, intensely fought struggle. Whatever the outcome, the city government's decision in this case is likely to be a significant ruling affecting business development outside the District's commerical core for years to come.

"Bit by bit, developers are eating up this neighborhood and others like it all over Washington," said Joseph N. Grano Jr., the president of the Dupont Circle Citizens Association and a resident of nearby 20th Street. "If Brookings is allowed to develop this property, it will be going against the whole thrust of city planning: to conserve what few residential units we have left."

In a comprehensive land-use plan unveiled in early October, city planners proposed preserving the Dupont Circle neighborhood for residential uses and confining commercial development to an area south of Massachusetts Avenue. That proposal, which will go to the City Council late next year, would be undercut if Brookings builds on P Street, Grano said.

Brookings' plan calls for constructing an eight-story, L-shaped complex that would house 100,000 square feet of commercial office space and a 69,000-square-foot apartment building on a wedge-shaped tract between Massachusetts Avenue and P Street. The property, now mostly covered by Brookings' office parking lot, also includes several small garden plots where Brookings has allowed residents to plant flowers and vegetables for the past few years.

The citizens association, the local Advisory Neighborhood Commission (ANC 2B) and a handful of other preservationists also are fighting Brookings' plan.

Before it can develop the site, Brookings must get the city zoning commission to change the site's classification from its current residential designation to one allowing special uses, which would include both apartments and offices.

Income from the $25-million complex could be a hedge against the fiscal crunch the institution anticipates in about five years, a spokesman said.

"We have a piece of property that is generating no revenue for us," said Neil H. Cullen, Brookings' director of administration. With a $300,000 deficit in 1980 and a $50,000 shortfall last year as well as an "eroding" $50-million endowment, Brookings may be in serious financial trouble by 1986. The buildings could be finished by then if the city approves the zoning change, Cullen said.

For officials at Brookings, the project makes perfect sense: build elegant offices and up to 82 apartments next door to its present offices, along with a 201-space underground parking garage. Lease the units, which are conveniently located in a quiet corner of the District -- and pocket the revenue.

But Brookings' neighbors, who are old hands at resisting the piecemeal development they say has already marred their area, are fighting the plan tooth and nail. They have vowed to ask the zoning commission to deny Brookings a hearing on the zoning change.

"Brookings wants an exemption to the zoning -- to the law -- and that shouldn't happen," said Dale Hudelson, who lives on Church Street a block away from P. "The lion's share of that property is zoned residential and should stay that way." Hudelson said development around Dupont Circle in the past 10 years has squeezed out 25 percent of the area's residents, or about 5,000 people.

"This is a key block in the residential mosaic of the District and Brookings is trying to ruin it," Hudelson said.

Hudelson and others said office construction on the Brookings site would destroy an important buffer between residential blocks to its north and commercial development encroaching from the south.

Brookings says it has taken care to accommodate its neighbors' wishes, scaling the building down from a planned 10-story height to only eight. The office building, which would stretch from Massachusetts Avenue northward to P Street, was designed to complement its neighbor, the ornate and boxy National Trust for Historic Preservation building.

The apartments, with brick, town-house-style fronts, would have a delicate, pointed roofline as a transition between the office wing and the Avondale apartments at 17th and P streets. "We're striking a compromise," said Cullen, "between all-office and all-residential. When we started out on this project, we asked ourselves what the best mix of uses would be, and this is it."

Brookings' design won praise from both the Joint Committee on Landmarks of the National Capital -- a city-federal agency which must pass judgment on new construction in the historic district around Dupont Circle -- and the Dupont Circle Conservancy, a preservation group. But neither commented on the intended use of the property.

"If you're going to build offices, why not do it downtown where there's a glut of them already," said Sophia Menatos, a former ANC commissioner who lives at 17th and P streets. "This project will create a lot of congestion and breed more crime. This block is almost entirely residential. This'll just make it that less livable."

Menatos said most residents of the Dupont Circle area oppose the Brookings plan. The local ANC went on record against the project and 100 people have signed petitions protesting the plan, Menatos said.

Brookings officials are scheduled to appear before the ANC for another hearing next Wednesday.