The Virginia Supreme Court has dealt a setback to plans for the $150 million Court House Plaza complex to be built beside the Arlington Courthouse, declaring that the county lacks the authority to lease a parcel of land there to developers.

"We really don't know what it means for Court House Plaza yet," County Board Chairman John G. Milliken said yesterday. He said, however, that he did not expect the decision to kill long-negotiated plans for the project, designed to house a new government center in a complex of offices, residences and shops.

The court's ruling, with Justice Charles S. Russell of Arlington dissenting, came Friday in response to a "friendly" lawsuit the County Board filed against County Manager Larry J. Brown last summer.

Milliken said he had not seen the court's opinion, but that the board was informed yesterday that the ruling did not address the central issue of the suit -- whether a specific ambiguity in Virginia law would allow the county to forgo rental income from the project..

The county plans to sell part of the six acres it owns immediately to the west of the courthouse to the Charles E. Smith Co. and the Artery Organization, a Maryland developer, for condominiums. The county also plans to lease another parcel to the developers for offices and shops.

The lawsuit was designed to test an agreement in which the county agreed to forgo lease payments from the developersif they default on the commercial parcel. It is unclear under Virginia law if a county has the legal right to make such an offer. The county had hoped the suit would resolve that question.

But the court, Milliken said, "said they didn't think we had the right to lease the property . . . It suprised us a bit. Clearly, we have the right to sell the property and do other things with it. How can you have the authority to do that and not be able to lease it?"

Milliken saidthe county can petition the court for a rehearing, explore other financing arrangements, or seek enabling legislation next year from the General Assembly to specifically allow leasing of county land.

He said he expects the board to continue deliberations on the land use issues while financing and legal questions are explored.

Neither County Attorney Charles G. Flinn nor spokesmen for Smith or Artery could be reached for comment last night. Improvements to county roads around the courthouse area have begun in anticipation of the project's construction.