Reversing an earlier decision, Virginia's top health official has agreed to allow the Fairfax Hospital Association to build a 160-bed facility near Fair Oaks Mall in western Fairfax if Commonwealth Hospital in Fairfax City is closed, association officials said .

The decision by state health commissioner James B. Kenley was an unexpected turning point in a long, high-stakes battle for the lucrative hospital bed market in western Fairfax County.

It also is expected to trigger protests from county residents who wanted the hospital built in Reston.

Four months ago, in a strongly worded ruling, Kenley had denied the association's application for a $30 million 185-bed hospital in the same area. Hospital administrators, health planners and local officials said yesterday they were stunned by Kenley's about-face.

"I'm absolutely shocked," said Fairfax Hospital Association vice president Donald Harris. "That's putting it mildly."

Harris said the group expects to receive a letter formally outlining the decision and a certificate of need, which must be obtained before a new hospital can be built, in the mail by the end of the week. State officials familiar with the matter declined to comment on Kenley's decision yesterday or could not be reached.

Kenley's action is expected to spark another round of debates over the need for additional hospital beds, the best location for a new hospital, and who should own the facility. Hospital Corporation of America, the nation's largest hospital chain, filed an appeal with the health department after Kenley's rejection of its request to build a 226-bed hospital in Reston.

Humana Inc., a hospital chain based in Louisville, unsuccessfully appealed Kenley's rejection of its proposal for a 200-bed Reston hospital. Thomas W. McCandlish said the firm decided not to take the battle on to circuit court and has dropped out of the competition.

Residents of Reston, who had hoped for the next new hospital in the county, were sharply critical of Kenley's decision, as were officials in Fairfax City, which would lose Commonwealth.

Harris said the association learned of the reversal on Monday, when hospital officials went to Richmond to appeal Kenley's rejection of their application.

Shortly before the hearings were to start, they were told that the state had decided to drop its opposition to the association's proposal, if the group would reduce the number of beds in the new hospital to equal those that would be lost when Commonwealth Hospital is closed.

George Barker, associate director of the Health Systems Agency of Northern Virginia, a regional health planning group, said the group will appeal the agreement. The association reviews health policies and makes recommdations to the state.

"It's bad to do business in this way. An important decision like this should be handled in public," Barker said. He said that, in the past, when groups have revised their applications, the state has required them to go through the public hearing process again.

Barker also said that the Health Systems Agency believes the new hospital is not needed and will force hospital costs up in the region. Asked if he thought the decision would have any affect on the Hospital Corporation's appeal of its application for a facility in Reston, Barker said, "The last thing we need in Northern Virginia is two relatively small hospitals that close in western Fairfax."

Karl J. Ingebritsen, a leader in Reston's fight to get its own hospital, said yesterday he was "astonished" by the decision. "There will certainly be a howl of outrage in Reston."

Supervisor Martha V. Pennino, Democrat of Centreville, said, "Frankly I'm sorry to learn of this. I just don't think it's the proper place." But Pennino said the decision may "strengthen the case for HCA," which has offered to close Circle Terrace Hospital in Alexandria in exchange for approval of a hospital in Reston.

HCA spokesman Milt Capps said, "It is not clear if there will be an immediate impact" on the company's efforts to build a hospital in Reston.

Fairfax City Mayor John W. Russell said that city officials have continuously fought efforts to close Commonwealth Hospital, and he believes that city opposition to the move will continue.