A special watchdog unit created recently by the departments of Justice and Defense to investigate fraud in defense contracts is about to locate in Northern Virginia, the dense-pack of military procurement.

Officials said that the six-month-old Defense Procurement Fraud Unit, part of a Reagan administration crackdown on contract corruption, waste and abuse, soon will be housed in offices in the Old Town section of Alexandria.

The site is within walking distance of U.S. District Court and near the massive military purchasing apparatus headquartered at the Pentagon, Crystal City and Cameron Station and scores of area businesses that thrive on government work.

The government offices, plus purchasing facilities in Norfolk and Richmond, handle an estimated 80 percent of all defense contracting in the eastern half of Virginia, according to the departments. The military spends about $500 million a day for goods and services.

"You have to infer there's plenty of work there," said U.S. Attorney Elsie Munsell, chief federal law enforcement officer in the state's Eastern District.

Munsell spent one morning last week in a closed-door briefing at the Defense Logistics Agency at Cameron Station in Alexandria, an agency that lets contracts on 51 percent of all items the military buys and which spent $16 billion in fiscal 1982.

"They buy everything from screws and nails to microchips to all the fuel for the military," she said. Assistant U.S. Attorney Richard Sauber, chief of the new unit, said fraud does exist.

"The extent, I don't know," he said. Sauber said big private companies often estimate losses due to theft or fraud at 1 percent to 4 percent. "The military spends money on a magnitude much, much greater than any corporation."

Sauber's team includes Justice prosecutors, lawyers from the armed services, military investigators and designated representatives in the services' internal audit agencies. The unit also will look for leads from U.S. prosecutors and investigators around the country in cases where the government previously declined to prosecute on a piecemeal basis.

"Say an Iowa supplier doesn't deliver on a contract valued at $1,500," said Munsell. "The prosecutor in Iowa might pursue that as a misdemeanor or not at all. But it may be part of a pattern involving a much larger parent company. These are big paper cases and some prosecutors don't have the resources to put into a big paper trail." The unit has asked for a computer to help in its investigation.

In Virginia, Sauber expects his unit to target corruption or waste in three basic categories:

* Labor-mischarging cases, where a company, for example, may be suspected of charging time spent on a commercial project to a government contract.

* Collusion between bidders, or between a bidder and government employes.

* Cases where "we don't get what we contracted for" and where items purchased are substandard or don't work.

The unit, organized under Justice's Criminal Division, has been working on cases since October and will review internal and outside audits of defense agencies. "We'll be relying on our investigators for leads," he said.

If indictments are forthcoming, the prosecutors will find themselves in a federal court system in eastern Virginia that is experienced in government contract fraud cases. Sauber declines to comment on whether the 4th U.S. Circuit Court of Appeals in Richmond, one of the most conservative appellate panels in the nation, was a factor in locating the unit across the Potomac instead of in the District of Columbia.

"The conduct of government employes in contracting tends to hit here in Northern Virginia ," said Munsell. "With the budget the way it is, everybody cares what's happening to the money."