The Alexandria City Council voted last night to permit developers to remove arsenic-contaminated soil from a vacant site on the Potomac waterfront in Old Town, reversing a seven-year-old regulation that declared the soil too dangerous to move.

City officials said developers plan a building to house a union pension fund on the waterfront between Wythe and Pendleton streets, the last undeveloped parcel on property contaminated about 50 years ago by a chemical company that then occupied it.

Earlier projects on other portions of the contaminated land--Tobacco Quay town houses in 1979 and Dalton Wharf in 1980--were forced by the regulation to cover the soil with a seal of iron-rich clays before building.

James T. Alexander Jr., chief of the city's Office of Environmental Quality, told the council last night that such extreme measures are no longer necessary.

"We are not relaxing the health protections," Alexander said, adding that what his office supported was only a slight change in procedure.

In 1976, he said, when the city was formulating its policy governing construction on the contaminated land, the arsenic contamination was considered more dangerous than it has subsequently been found to be. He said a newly developed test of the arsenic's solubility in water shows that it is less dangerous than feared. Based on that test, he said, the regulation should be revised to permit removal of the soil with special care to a dump outside the city.

The vote approving the new regulation was 6 to 1, with member Donald C. Casey casting the negative vote. "If we change this and we are wrong, the problem will come up five to six years from now and it will be a disaster," he said.

Vice Mayor James P. Moran Jr. said getting the contaminated soil out of the city is worth the "marginal" risks.

In other business, the council voted unanimously to spend $20,000 to hire the ATE Management and Service Co. of Cincinnati to start organizing a bus system that the city plans to set up when Metrorail service is extended to Alexandria in December. The buses will supplement the Metrobus service, providing connections between the city's neighborhoods and the rail stations.