A former secretary of the rural Loudoun County town of Lovettsville has been indicted on charges of embezzling money from the town's tax and utility accounts, the Loudoun Commonwealth Attorney's Office said yesterday.

Lillian H. Mills, 38, was charged with two counts of embezzlement by a Loudoun grand jury, after a two-month state police investigation of about $2,000 in missing money. Mills could face 20 years in prison for each count, if convicted.

An investigation of a recent rezoning for a housing development is now expected to get underway because of complaints by residents of ties between former town officials and developers, a state police investigator said.

The indictment Monday came four months after Mills, the mayor and four other town officials resigned within weeks of one another, creating turmoil in the western Loudoun town of 750. It was the largest resignation of officials in town history.

Dennis Sawyer, a new council member, said the indictment will almost certainly upset residents still stinging from the unexpected resignations. "I think there will be quite a few people in town who will wonder if it really ends here," he said.

Mayor Elaine Walker, who took office last fall, said the council asked for an investigation because a town employee discovered financial irregularities in town records. She vowed yesterday to recover any money that might have been taken.

"I'm very disappointed, extremely disappointed, that people who you put in trust of town affairs would violate that trust," Walker said.

Mills, who had worked as town secretary for six years, declined to comment yesterday, according to her lawyer, Dean Worcester.

Mills allegedly took money from real estate tax accounts, water and sewer bills and motor vehicle fees, which often were paid in cash, said Vernon Fay, a state police special agent and accountant. Mills allegedly issued receipts in 1989 and 1990 without depositing the money, Fay said.

"Not all the money was deposited in the town's bank," he said. "We think our documentation is ironclad."

State police investigators plan to look at the circumstances surrounding the rezoning of about 47 acres last year for a housing development. Residents have made allegations of close ties between former town officials and developers, Fay said.

The proposed development, which calls for 252 houses and town houses, was fiercely opposed by residents, who said it would ruin the area's charm. If completed, the project would double the town's population.

Developer James Campbell, a Leesburg lawyer, has said he occasionally visited officials at home to discuss the rezoning. Campbell, who said he did nothing wrong, has worked as attorney for both the former mayor and chairman of the town's planning commission.