NEW YORK, July 24 (Reuters) - A lawyer for the U.S. government asked a federal court on Tuesday to throw out a lawsuit brought by New York state challenging proposed natural gas development in the Delaware River Basin.

Assistant U.S. Attorney Sandra Levy said New York could not challenge regulations that would allow development to go ahead until those regulations had been finalized.

New York and environmental groups sued the U.S. government in 2011 seeking environmental studies to determine the effect of gas drilling in the Delaware River Basin, which supplies water to about 15 million people.

The proposal would allow as many as 18,000 wells in the Delaware River Basin, some of which would be developed using hydraulic fracturing, or fracking, in which underground gas is extracted by injecting a high-pressure stream of water and chemicals.

During oral arguments Tuesday on the government's motion to dismiss the lawsuit, Levy argued that New York could not object to the lack of environmental review until the Delaware River Basin Commission had issued a final version of the regulations.

"Right now, the injuries are hypothetical, not actual," Levy said. She added that the United States could not control the actions of the commission, which comprises one representative from each of the four states bordering the river plus one from the federal government, and could not be sued for its decisions.

A lawyer for the commission, Kenneth Warren of Hangley Aronchick Segal Pudlin & Schiller, said it "has no ability to fund" a study under the National Environmental Protection Act demanded by the plaintiffs. While the agency believes it is not bound by the act, Warren said it nevertheless has performed a robust environmental analysis on the drilling proposal. It would continue to study the issue until all commissioners were confident in the ability to drill safely, he said.

Lawyers for the plaintiffs argued that the commission was required to perform an analysis under the act as soon as the proposal was issued, and that it was the commission's responsibility to find the funds to do so. Until such a review is complete, they said, the final regulations should be blocked.

"There's no NEPA exception for the commission," said Phillip Bein, an attorney in the New York attorney general's office.

U.S. District Judge Nicholas Garaufis reserved his decision on the government's motion to dismiss the lawsuit. He voiced concern for the potential impact on urban centers like New York City that rely on the Delaware River Basin for water.

"There's a serious reason to be concerned about the water supply," Garaufis said. "If something happens, it could have a detrimental effect on millions of people."

New York is currently working on its own environmental review to determine whether to permit fracking in the state. Some towns have taken steps to ban the practice within their borders, and several of those bans have survived initial challenges in New York state courts.

The case is State of New York v. U.S. Army Corps of Engineers, U.S. District Court for the Eastern District of New York, No. 11-2599.

For New York: Phillip Bein and Andrew Frank of the New York State Office of the Attorney General.

For the U.S. Army Corps of Engineers: Sandra Levy of the U.S. Attorney's Office for the Eastern District of New York.

For the Delaware River Basin Commission: Kenneth Warren of Hangley Aronchick Segal Pudlin & Schiller.

For the Delaware Riverkeeper Network: Jane Davenport, Jordan Yeager, Nicholas Patton and Lisa Perfetto.

(Reporting by Jessica Dye)

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