The tiny town of Poolesville in upper Montgomery County is seeking a new federally funded $2 million sewage-treatment plant that would ease the town's overloaded sewer system, allow the state to lift its moratorium on development there and thus enable the town to grow into a bustling little city among the cornfields and Black Angus cows.

But a small band of vocal citizens is challenging the town fathers on the wisdom of building the plant, calling it too big, too costly and too sophisticated, while dismissing the environmental grounds that its supporters cite to justify it.

What's more, the opponents say, the growth that would follow the new plant would directly benefit the 67-year-old president of the town's governing body, the Poolesville Commission, Charles Elgin Sr., who is strongly pushing the project and also owns a 178-acre Poolesville farm that is prime land for development.

One of the citizen opponents, John G. Stringer, who ran unsuccessfully "numerous times" for a seat on the five-member commission, has asked the state prosecutor, Gerald D. Glass, to investigate a possible conflict of interest by Elgin.

Elgin, in turn, calls the allegations concerning him "political fodder." He acknowledges that he and a brother own a 178-acre farm scheduled in county master plans for eventual development once the moratorium on development is lifted. That moratorium was imposed by Maryland health officials who found the existing water-and-sewer service inadequate.

Elgin said the family land, with its potential for development, is irrelevant to his advocacy of the new sewage-treatment plant.

"As far as I'm concerned," he said, "This is nobody's damned business.

"My family has owned land in this town for years and years and years," said Elgin, the town's retired postmaster, former planning board member and a third-generation Poolesville resident. "We're not land speculators or Johnny-come-latelys . . . If we want to sell it the farm or develop it, I have every right."

He added, "I don't expect to live to see it developed." He said that after he dies, the land will be passed on to his children and other relatives.

This small-town battle over the new sewage treatment plant--waged with conflicting statistics, cost estimates and now the conflict-of-interest allegation--is the latest in Poolesville's continuous civil war between old-time residents who want to see the town grow and develop and the "newcomers" who moved from downcounty for the serenity of a rural life now under threat of extinction.

Poolesville's current problem can be traced to rapid development that began about 1960.

A sewage-treatment plant built with a $550,000 bond issue became so woefully overburdened that manhole covers once popped off, and the streets were flooded with sewage.

The state moratorium on construction came in 1976. Some housing subdivisions were halted in mid-construction.

Last year the town's elders found a way out of the dilemma. The town was eligible for a $2 million Environmental Protection Agency construction grant under the federal Clean Water Act because Dry Seneca Creek, which winds through the northern part of the town, is below federal clean water standards. The state has a responsibility for monitoring the quality of the creek.

Last week, the final plans for the project--and the projected sewer-and-water-rate increases to residents--were submitted to the state for approval, said Dennis M. Kamber, the town's engineer.

Two Poolesville residents, armed with their own data and with backgrounds in environmental engineering, have waged a nine-month crusade to block the new facility. In the process, the two, Lawrence A. Salomone and Robert Watson, have also taken on the entire town establishment, which has cast them as "agitators," no-growth advocates, and the ultimate of small-town insults, newcomers.

Salomone and Watson have challenged the premise that Dry Seneca Creek needs to be "saved." They cite the state's own figures showing that in periods of drought, only .35 cubic feet of water per second meanders through the creek's winding bed. With zero cubic feet per second considered "dry," the two men are saying that, at its worst, Dry Seneca Creek is essentially, as its name implies, dry.

"It's too small a flow," Salomone said, "so why spend that kind of money?"

Town engineer Kamber replied, "Anything greater than zero is not a dry stream. And even at that low condition the .35 level we still want to protect our streams and rivers, which are considered natural resources."

Salomone and Watson said they are worried that the sewage facility is overdesigned for a town with just 3,500 people--unless, of course, the plant is really being designed to accommodate future development. "It's like buying a riding lawn mower when you live in a town house with 10 square feet of lawn, and you could make do with a weed-whacker," Salomone said.

Elgin said, "Granted, it the plant might allow a little bit of growth. But growth isn't the big issue."

Salomone and Watson said they fear the cost estimates for the plant were too low, and that town rate-payers may get stuck with higher bills to pay for maintenance and to improve the existing sewer-collection system to match the new plant. Those costs could run as high as an additional $2 million, they said. They think the town's estimated increased rate cost--$19.58 a year for the average family--is unrealistically low.

Moreover, the two see Poolesville repeating the experience of some other small towns that accepted similar federally funded water-and-sewage treatment facilities that were too big and too sophisticated for their needs. In Thayne, Wyo., a waste-water treatment plant left that small town broke and stuck with a facility it could not manage, according to a U.S. General Accounting Office report.

The mayor of Thayne, Charles Dana, said in a letter responding to the GAO report: "The town is faced with perpetual costs of operations and maintenance" and "would like nothing better than to give the entire system back to the state and federal governments."

Kamber, Poolesville's engineer, defended the plant proposed for his town, saying that some of the facility's costs would be recouped through increased development, with the developers paying for their own sewer hookups. "As the town grows, the rate will go down," he said.

He added that Poolesville should not suffer the problems of not knowing how to operate the facility or being able to pay for repairs when it breaks. Part of the federal money pays for an operation and maintenance manual, he said, and for training classes for the operators.

But Salomone sees this new plant for Poolesville as a classic example of the kind of federal government waste and interference in local affairs that President Reagan has pledged to combat.

"There is a history of small towns having huge financial burdens and inefficient sewage-treatment plants, because they tried to take advantage of federal construction grants," he said. "Now, for the first time in history, a group of citizens have gone to EPA and said we don't want your handout--it's not necessary."

Salomone and Watson have asked the EPA to investigate. Their request is pending.