By Jennifer Chaussee

(Reuters) - A Southern California couple who scaled back watering their lawn amid the state's drought received a warning from the suburb where they live that they might be fined for creating an eyesore - despite emergency statewide orders to conserve.

Michael Korte and Laura Whitney, who live near Los Angeles in Glendora, said on Thursday they received a letter from the city warning they had 60 days to green up their partially brown lawn or pay a fine ranging from $100 to $500.

"I don't think it's right for us to start pouring water into our lawn in the middle of July during a drought," said Whitney. "We're kind of in a quandary about what to do."

The letter, bearing the official symbols of Glendora and its police department, came the same week that statewide water regulators passed emergency drought restrictions for outdoor water use. Those regulations, to take effect this August, require cities to demand cutbacks in water use, and empower them to fine residents up to $500 for overwatering their lawns.

California is in the third year of an extreme drought that is expected to cost the state an estimated $2.2 billion and more than 17,000 agricultural jobs. Democratic Governor Jerry Brown declared a drought emergency in January.

In Glendora, City Manager Chris Jeffers said the city did encourage conservation, but that Korte's and Whitney's lawn was in such bad shape that it was reported as possibly abandoned.

"We were responding to a complaint that we received of a possible abandoned property," Jeffers said. "Crews visited and determined it was not abandoned, but not kept. The landscape was dead and there were large areas of just dirt."

Instead of citing the couple, he said, officials opted to leave a letter explaining that conserving water did not mean abandoning the landscape.

"Conservation does not mean neighborhoods need to deteriorate because property owners want (the) landscape to die or go unmaintained," he said.

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Glendora's action provoked a strong response from state environmental officials, who said such moves undermined conservation efforts.

“Throughout the state, Californians are making serious efforts every day to cut their water use during this extreme drought," said Amy Norris, spokeswoman for the California Environmental Protection Agency. "These efforts to conserve should not be undermined by the short-sighted actions of a few local jurisdictions, who chose to ignore the statewide crisis we face."

(Reporting by Jennifer Chaussee in San Francisco; Editing by Sharon Bernstein, Lisa Shumaker and Peter Cooney)