A legal dispute between Loudoun County and the Town of Leesburg could delay development of Xerox Corp.'s multibillion-dollar commercial and residential project north of Dulles International Airport.

Philip Ricciardiello, Xerox vice president in charge of the Potomac Park project, said the protracted dispute over which jurisdiction will supply water and sewer service to the property may cause the company to defer the project indefinitely.

"Our absolute hope is that the dispute will be settled within two weeks," he said. "If not, Xerox won't make any further capital investments in the project."

The company plans to build the project during a 10- to 15-year period on a 2,267-acre site along the Potomac River about 10 miles north of Dulles. It would be one of the largest developments in Northern Virginia, home for 13 large corporations and 1,830 residential units, and is expected to bring in $30 million a year to the county once the project is completed.

Both Loudoun and Leesburg are claiming the right to provide water and sewer services to the new project, which lies entirely in the county. Xerox signed an agreement with Loudoun in 1972 saying the county would supply water and sewer services to the land.

But a 1982 annexation agreement between Loudoun and Leesburg gave 7.1 acres of county land to the town and gives the county and town joint approval over who provides water and sewer to 200 acres of the Potomac Park project.

Loudoun and Xerox officials say Leesburg wants to provide water and sewer services for the 200 acres because it hopes eventually to provide town services to an additional 1,100 acres in the county near Potomac Park on the other side of Goose Creek. They also contend that Leesburg wants eventually to annex those acres and become a city.

"The town is holding Xerox hostage in order to gain jurisdiction over a much larger area than the 200 acres in question," said Xerox attorney William G. Thomas.

"I don't care to comment on that right now," said Leesburg Mayor Robert Sevila. "I hope no other Leesburg official would comment yet either."

In March the town asked a three-judge Virginia annexation court to hear a motion that Loudoun had violated the terms of its agreement with Leesburg.

The court dismissed the town's motion last week, saying it had no jurisdiction in the matter. Sevila said the town can appeal that decision to the Virginia Supreme Court, seek a legal remedy in county Circuit Court, or both.

In an attempt to avoid further litigation, Sevila and Vice Mayor Charles Williams met with county officials several times this week to propose that the county provide water and sewer services on the west side of Goose Creek and the town be allowed to provide services on the east side. County officials agreed to take the proposal under consideration but are chafing, they said, at the potential loss of millions in tax revenues by delaying the Xerox project while the dispute continues.

"Xerox has and has always had a commitment to the Potomac Park project," Thomas said. "It makes no difference where we get water and sewer but we have a binding contract with the county."