Paul F. Levy, executive director of the Massachusetts Water Resources Authority, said the Wednesday ruling "has the potential both to slow down the project and increase its cost." Levy said the MWRA may appeal to the US Supreme Court.

In May 1989, the MWRA and representatives of 31 construction unions reached a labor-harmony arrangement including a quid pro quo: The authority promised that all contractors would have to hire union labor or enroll their nonunion workers in a union, and the unions promised never to strike during the decade-long project.

The ruling could have a major impact on Boston's other "big dig," the artery-tunnel project. Richard D. Wayne, a lawyer representing the Utility Contractors of New England, which has sued to block the artery project's union-only clause, said the Wednesday ruling was a "positive" development for his cause and yesterday asked the state Appeals Court to issue an injunction enjoining the artery labor policy.