Construction of a private prison in Pennsylvania that would house more than 1,000 District inmates has been halted by state officials, who say that privately run prisons are not allowed in the state.

Pennsylvania Attorney General D. Michael Fisher threatened legal action against the Houston-based Cornell Corrections Inc. if it continues to build the prison in Moshannon Valley, 25 miles northwest of State College, Pa., and about 250 miles northwest of the District. The company, which began construction last spring, already has spent more than $11 million on construction and the hiring of a warden and several assistant wardens, according to Tom Rathjen, Cornell's managing director of development.

"As you should be aware, Pennsylvania has no statute or other law authorizing the establishment or operation of a private prison within its borders," Fisher said in a Sept. 1 letter to David Cornell, the company's chairman. "Absent such authorization, the operation of a private prison in Pennsylvania is unlawful."

Cornell and federal Bureau of Prisons officials were taken by surprise, saying that they were unaware of any regulations that prohibited the prison and that state officials had issued the necessary construction and environmental permits and licenses.

The bureau awarded a $342 million, 10-year contract to Cornell to build a 1,050-bed facility for 350 men at minimum-security levels, 350 women and 350 youths sentenced under the Youth Rehabilitation Act.

The contract is the first of two the bureau will award to house about 2,200 inmates under a federal financial rescue plan for the District that requires the shutdown of the Lorton Correctional Complex in Fairfax County. The other contract has not been let.

Lorton must close by the end of 2001, with the inmates transferred to federal or privately run prisons. More than 2,000 male prisoners already have been transferred to prisons in Virginia and Ohio. Dozens of female inmates were shipped to federal facilities.

Company officials had until yesterday to assure the state that construction will cease.

"It's a very firm action we're taking," said Lou Rovelli, Pennsylvania's executive deputy attorney general. "We are telling this company that in this state, it is illegal to construct and operate a private prison."

Tom Jenkins, Cornell's chief operating officer, said yesterday company lawyers believed that because Pennsylvania has no law regarding private prisons, it was not illegal to operate one.

"We clearly believed . . . that allowed us to go forward," Jenkins said. "It is a federal contract, and we would be governed by federal statutes, and it was our intent to mirror a federal program."

A Bureau of Prisons spokesman agreed. "There was nothing that existed at the time that precluded the company from going forward," said spokesman Dan Dunne. "As far as responsibilities go, we were not aware of the concerns of the AG."

In the meantime, the Bureau of Prisons will have to house the 1,050 District inmates in federal facilities or contract with other private prisons, Dunne said.

The Pennsylvania prison was being constructed on two reclaimed coal mine sites totaling 197 acres in an economically deprived part of central Pennsylvania. Cornell initially wanted to build on a former airport site not far from the Clearfield County location, but an environmental group opposed it, Jenkins said. The group then recommended the two tracts owned by four members of a family. Cornell purchased the sites for $378,000. The prison was expected to produce 346 jobs, he said.

Construction was halted when the Citizen's Advisory Committee on Private Prisons in Osceola Mills, Pa., sued the federal prison agency, alleging that it failed to conduct the necessary environmental studies before starting construction.

The bureau issued a stop-work order on the project in June for at least 45 days until the agency reevaluated the environmental documentation. That order was extended through October, Rovelli said.

"We were working around the clock for a couple of months," Rathjen said. "Had we continued on our schedule, we would have taken our first inmate in December."

But Rovelli said state officials took successful legal action 12 years ago to prevent the opening of a private prison in Allegheny County.

Cornell's only option is to "pursue legislation" when state lawmakers return Sept. 27, Rovelli said. State Sen. Jack Corman, whose area includes Moshannon Valley, has indicated he may introduce legislation to pave the way for Cornell, Rovelli said.

Asked why the attorney general waited until September to act, Rovelli said his office wasn't aware a prison was being built until several months after construction began. That's when the Pennsylvania Department of Corrections and Gov. Tom Ridge (R) asked the attorney general to "examine the legal issue."

"They have to have known," Rathjen said. "And it was all over the news. Everybody knew."