Alexandria's housing agency risks losing $6.7 million of federal money if it doesn't allow a tenants' group to redevelop part of a public housing project in Old Town, the U.S. Department of Housing and Urban Development warned yesterday.

The threat came on the same day that a federal judge--for the second time--ordered the Alexandria Redevelopment and Housing Authority to accept a bid from the tenants group, which wants to redevelop a two-block stretch of a project known as the Berg. The group, Alexandria Resident Council, represents the roughly 3,000 tenants of public housing in the city.

U.S. District Judge Leonie M. Brinkema rebuked the authority, and even mentioned the possibility of appointing a receiver to take over the project if her order isn't followed.

Under federal law, the tenants have the right to redevelop such properties themselves, providing that their proposal matches that of the lowest bidder and is financially sound. But the authority has repeatedly rejected the proposal of the Alexandria Resident Council, saying the financing was questionable, even after Brinkema ruled in September that the proposal was financially firm and told the authority to work with the tenants "in good faith."

Yesterday, Brinkema said she was not appointing a receiver to take over the redevelopment--"yet"--but wanted both parties to appear before her again Nov. 29.

Receivership "is an absolutely extraordinary remedy and even the mention has to be hair-raising for the city authorities," said Victor M. Glasberg, an attorney for the resident council. "It's phenomenally unusual considering the city at issue. Alexandria is generally thought of as being a very well-run city."

Coincidentally, the authority also received a letter yesterday from Elinor R. Bacon, deputy assistant secretary for HUD's Office of Public Housing Investments, stating that its $6.7 million grant for the project was in default. To receive the money, the letter said, the authority must show within 30 days that it is moving forward with the tenants' group on the redevelopment.

In closing, the letter stated that HUD may appoint an "alternative administrator" in lieu of the authority to manage the money.

The housing authority is supervised by federal and Alexandria city officials. It receives money from the federal government and from bonds. The board's nine commissioners are appointed by Alexandria's City Council

The authority's executive director, William Dearman, said yesterday that the authority had not decided whether to appeal Brinkema's decision, but would consider that Monday night at its board meeting.

Dearman said he had no other comments. Board Chairman Michele Chapman declined to comment.

At stake is the redevelopment of 100 run-down units of public housing in Alexandria's affluent Old Town neighborhood. The units sit next to $400,000 town houses just four blocks from the Potomac River. Six years ago, the housing authority, with the city's blessing, voted to tear down the public housing and build a mixture of public and private housing on the site.

The authority selected McLean-based developer, North Village, for the project in 1997. The Alexandria Resident Council, in conjunction with District-based Telesis Corp., has challenged that selection. During the conflict, many Old Town neighbors have spoken in favor of North Village and said they fear the tenants' project would end up in bankruptcy.

Resident Council Chairman Pete Jones, who has publicly accused the neighbors and the authority of racism, said yesterday that he hopes the matter can finally move forward.

"God is looking down on us, and God is on our side," he said.

Alexandria Mayor Kerry J. Donley (D) called the delays frustrating and ridiculous.

"Blame can be shared by a lot of different parties," he said. "The one aspect I think has been lost upon everyone here is the fact that while federal officials and local officials and federal judges have been engaged in this paper chase, residents in the Berg have been living in substandard housing."