Spencer Pratt & Heidi Montag Sue L.A. Over Palisades Fire That Destroyed Home

Spencer Pratt and Heidi Montag are going scorched earth on city officials in Los Angeles after losing their home in a wildfire ... saying some head-scratching decisions are to blame.

The reality TV stars are suing the city of Los Angeles and the L.A. Department of Water and Power over damage their Pacific Palisades home suffered in the Palisades Fire.

According to the lawsuit, obtained by TMZ, Spencer and Heidi say the city and DWP failed on multiple levels ... from infrastructure to water management.

Spencer and Heidi claim a nearby reservoir was empty -- and had been offline for months -- when the Palisades Fire ignited ... limiting the flow of water to fire hydrants and tankers in the Palisades, where firefighters say they ran out of water trying to fight the inferno.

The couple says DWP was trying to save costs by draining the reservoir and seeking bids for repairs ... and they claim it ended up costing homeowners dearly when a fire ripped through town.

Spencer and Heidi are also blaming L.A. and DWP for a faulty water system design ... they say there was no way infrastructure could effectively fight wildfires, a flaw they claim city officials admitted to in the wake of the fires.

The "Laguna Beach" and "The Hills" stars are suing along with 20 other folks who lost their homes in the Palisades Fire ... and they're going after the city and DWP for damages.

We reached out to DWP ... so far no word back.